Eoin Treacy's view I last reviewed some of the constituents of the UK's FTSE-100 on July 29th when the Index was trading in the middle of a 7-month range and still had a progression of higher reaction lows. These were broken on August 2nd as the Index fell through the 5750 level. The correction to date is by far the largest posted since late 2008. While short-term oversold, the medium-term chart characteristics exhibit a completed Type-3 top. Such has been the depth of the decline that it cannot help to have had an impact on investor sentiment. Time will be needed to build support, restore confidence and to indicate that the panicky selling of early August has passed.

The Index at least paused in the region of 4800 on August 9th and has since found support above that level on a pullback; posting a higher reaction low in the process. This is the first in a list of preconditions that will need to be met to signal demand is returning to medium-term dominance. Here are the others:

2. It will need to rally above 5400. This would post a higher rally high and create the conditions for at least a short-term uptrend.
3. If conditions continue to improve, the recent low near 4930 will hold on the next pullback.

Both of these additional considerations would be encouraging from a multi-week to several month bullish perspective. However to defray concerns that the current trading range is nothing more than a distribution below the medium-term Type-3 top;

4. The Index will have to sustain a move back above 5600.

This situation presents a problem from the perspective of investors because at least a 7% advance is required to confirm the best case scenario, while a 5.2% decline would increase the likelihood of another round of selling. These aren't particularly good odds on top of the fact that conditions 2 and 3 above have not yet been met. This supports our contention that there is no need to pay up for anything in this environment.

On July 29th I reviewed a number of shares, many of which have since experienced considerable technical deterioration. A large number have broken progressions of higher reaction lows and sustained moves below their respective 200-day MAs which is trademark bear market activity.

Previous high fliers such as Burberry, Weir Group and Shire have all pulled back sharply; posting the largest reactions in the course of their respective almost three-year uptrends. The potential that medium-term top formation development has begun has greatly increased for Burberry and Weir Group. Shire has bounced more emphatically but time is still required to ascertain whether it can hold its recent gains.

The financial sector continues to lead to the downside. Both HSBC and Standard Chartered, which had been some of the better performers, have completed medium-term top formations. While oversold in the short-term, significant technical deterioration has been experienced and they would have to sustain pushes back up into the overhead ranges, above 600p and 1600p respectively, to question the consistency of the medium-term downtrends.

Fresnillo, one of the world's largest silver mines, broke upwards to new highs in early August, found support near the January peak a week later and hit a new high on Monday. It pulled back sharply over the last few days, in line with silver prices, but a sustained move below 1600p would be required to question medium-term upside potential. Randgold Resources has rallied for 8 of the last 10 weeks but encountered resistance near 7000p and the 2010 highs. A clear upward dynamic would be required to offset current scope for a further unwinding of the short-term overbought condition.

Higher yielding shares have generally held up better. GlaxoSmithKline with a yield of 5.19% has rallied impressively over the last three weeks to test the upper side of its 3-year range. National Grid (6.13%) has a relatively similar pattern.

Next (3.5%) and Unilever (3.74%) remain within relatively close proximity of their respective peaks and above their 200-day MAs. The medium-term upside can continue to be given the benefit of the doubt provided they continue to hold above the early August lows.

Security company G4S (3%) has rallied impressively from the lower side of its 20-month range but needs to hold above 240p to limit Type-3 top formation development potential.

International Power, majority owned by GDF Suez which has an altogether less encouraging chart, has bounced back emphatically over the last couple of weeks. It is now testing the 8-month progression of lower rally highs and a sustained move above 325p would suggest demand has returned to medium-term dominance. The share paid a large special dividend earlier this year which skewed the 12-month yield. The indicated figure is closer to 3.21%.

Intertek Group (quality control) yields 1.46% and lost momentum from April. It has returned to the region of the 200-day MA and rallied impressively over the last couple of weeks. The share is now testing the 5-month progression of lower rally highs and a sustained move above 2000p would signal a return to medium-term demand dominance. Intertek is noteworthy because all its business units are growing, and its focus, in descending order is on Asia, the Americas and EMEA.

Scottish & Southern Energy (6.08%) has returned to the upper side of the 2008-2010 base and appears to be in the process of finding support. A sustained move below 1200p would question this hypothesis. (Also see Comment of the Day on August 8th).

The performance of the above shares demonstrates the heightened sense of risk aversion among investors. Shares with less exposure to the US and European economies and/or with solid utility-like cashflows, offering attractive yields have held up best.