nexttrade: Equity markets rocked by Oil's sharp rise

Equity markets, which rallied strongly off their March low, have been showing signs of weakness for the past two weeks. Some analysts believe that the current rally, which could be just a bear rally, may have peaked & is due for a correction. One of the main reason for the current market's correction is the sharp rise in the price of crude oil.

Jim Cramer, a columnist with the Street.com, cautioned equity investors to be patient. In his latest article entitled "Lower Oil is the Bull's Only Hope", he wrote: "So we wait, and watch the market go down until oil has a price break. Because there is no way you can mount a serious rally with these price increases (in Crude Oil)."

Chart 1: Crude Oil chart as at May 23, 2008 (courtesy of SuperCharts by Omega Research)

Below, I have presented the charts of our market, Dow Jones Industrial, London's FTSE, Hong Kong's HSI & Singapore's STI. We can see that all these indices, with the exception of our KLSE, had already made a lower 'low' compared to the preceding 'low', recorded in early May. Today, our KLCI has joined these other markets & recorded a lower 'low' as well. There is a serious possibility that equity markets may see a big selloff if the price of crude oil were continued in its present trend & hit the psychological USD140 or USD150 level.