Market rally unlikely to last, according to market technician
Current world equity market outlook


/Semiconductor News Articles/ - TAIPEI, TAIWAN, July 21, 2006 - Technical analysts are warning investors not to get too excited about the latest rally. "We are not out of the woods yet. This is just an oversold bounce. Overeager bulls are likely to get trapped," says Ulrich Krach, a proprietary trader and technical analyst at Primasia Securities in Taiwan.

According to Krach, the problems that have caused the sell-off in global markets since May of this year haven't gone away. These include record high oil prices, a slowing economy, a slowing housing market, global monetary tightening policies and geopolitical tensions. "If the conflict in the Middle East starts to pull in Syria and Iran, we could see a major disruption in oil shipments and skyrocketing crude prices. The equity market is already nervous about oil at US$80, you can be sure oil at US$150 would cause a massive sell-off in equities. I don't see tensions in the Middle East dropping anytime soon," commented Krach.

Inflation has gotten a lot of the headlines, and despite Fed Governor Ben Bernanke saying it is under control, inflation fears continue to weigh on the market. The price of raw materials, as measured by the CRB (Consumer Research Bureau) index is close to its 3 year highs of 366. "The trend of rising raw material prices continues to have a strong upward bias. There is most definitely an inflation problem". Equity prices are also under pressure due to a weakening in the economy. "The market is deathly afraid of stagflation (weakening economic growth and rising inflation), as the stagflation of the early 1970s saw a grinding bear market with minor rallies and strong sell-offs".

Right now, the NASDAQ and SOXX (semiconductor index) are leading the market down, which is classic bear market behavior. Also, we are seeing "down" volume heavier than "up" volume, indicating distribution. The market is trading under the 10 day, 50 day and 200 day moving averages, all indications of a bearish trend. "Investors should use any signs of market strength to unload their holdings. Things are likely to get worse before they get better," says Krach. The S&P 500 earnings season begins full swing this week, but it is unlikely that the record double digits earnings growth may continue this quarter. "Negative earnings surprises will not be well-received by the market".

Contact: Ulrich Krach, Taiwan
886-958921895, ukrach@primasia.com

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Uli Krach
Primasia
Prop Trader/Technical Analyst
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