David Fuller's view The UK's FTSE 100 (weekly & daily) looks top heavy and has been ranging lower since encountering resistance from the January and February highs in early May. Today, it has broken beneath lateral trading near 5800 and also the 200-day MA. A clear up dynamic is required to question current scope for a further decline towards the March low near 5600.

The FTSE 350 Banks Index (weekly & daily) has fallen to the lower side of its broad trading range since September 2009. It looks somewhat overextended but a break in the recent progression of lower rally highs, requiring a close above 4600, is the minimum needed to signal recovery scope.

Germany's DAX (weekly & daily) has held up better than most stock market indices but has drifted back to the psychological 7000 level which is just above the MA. An upward dynamic which is also evident on the weekly chart is required to reaffirm support in this area.

Euro STOXX Banks (weekly & daily) have ranged to the lower side of their boundary and while becoming somewhat overextended, a break in the progression of lower rally highs, currently necessitating a close above 167, is needed to check downtrend consistency and indicate recovery scope.

The US 2-yr Bond Yield (weekly & daily) has fallen steadily since its April rally high and now looks very overextended in the region of the October and November 2010 lows. Watch for a loss of downside momentum signalling basing activity prior to a recovery.

The US 10-yr Bond Yield (weekly & daily) is also becoming overextended following a decline back to the mid-point of its developing base formation near 3%. Any additional weakness should prove difficult to maintain and an upward dynamic, similar to those seen at the 2008/9 and 2010 lows would indicate recovery scope within this long-term reversal formation.

Conclusion - Most stock market indices remain in short-term downtrends and the previously strong ASEAN group has seen its rallies stall. There is also some evidence that the global correction is entering a capitulation phase, a possibility that we have been mentioning in this week's Audios. This is creating a short-term oversold condition.

Risk is increasingly being discounted by stock market prices, but the same cannot be said for government bond yields which are overextended on the downside.

A much more detailed discussion is in the Friday big picture Audio.