An eight percent plus sell-off from the FTSE 100's January peak is a decent enough correction at one go and it would not be unreasonable to expect a rebound, but the index as well as other leading indices look vulnerable to further profit-taking. While the relative strength indicator (say the 14-day RSI) suggests the FTSE 100 is oversold, various other overbought/oversold indicators, such as the one shown overleaf for the UK equity market, does not register anything like an extended oversold condition. That could suggest that any attempt to rally might be exhausted rapidly.

Also, concern about sovereign debt, notably though not exclusively within the European Union, appears to be coming through to the high yielding end of the market for corporate debt, an area of the bond markets that tends to be acutely sensitive to the winds of change. As the lower chart on the next page shows, the spread has been widening over the past few weeks. Considering where these spreads have come from and the extent of the collapse seen over the past year or so, the recent move is nothing to fret over - yet - but it bears watching for the lead it might provide on the outlook for global economy and the merits of the recovery that is under way.

David Fuller's view Stock markets are currently unwinding a short-term oversold condition.

Theoretically, this move could gain upside traction given the proximity of 200-day moving averages. However, to date there has been little evidence of the upward dynamics which we saw following the last correction in July 2009, as you can see from charts for these representative examples: US S&P 500 (weekly & daily), UK FTSE 100 (weekly & daily), German DAX (weekly & daily) and Australian AS51 (weekly & daily). Consequently these indices and so many others with similar patterns are one downward dynamic away from reasserting the downward bias.

With the exception of Australia, we could attribute this lethargy to concern over weak growth prospects and sovereign debt concerns. The US stock market seldom leads but there is unlikely to be any widespread resumption of upward trends without the USA's participation, given the importance of Wall Street's leash effect.

Interestingly, China (weekly & daily), which does sometimes lead and is now the world's second most influential stock market had an upside key day reversal on 3rd February and has remained above that dynamic signal. However it will be a few more days before this market provides its next clue because it is closed until next week due to the Chinese New Year. Brazil (weekly & daily) is another market capable of providing leadership in today's environment. It firmed last week and a higher high on a close above 67,500 would be encouraging for the bulls.