UK's FTSE slips from latest peaks as Fresnillo falls

Tue Jan 22, 2013 4:36am EST

* FTSE 100 down 0.5 pct, off fresh 4-1/2 year highs

* Fresnillo among top fallers after Q4 update

* FTSE 100 in technically "overbought" territory

* Traders expect sell-off in immediate term

By Sudip Kar-Gupta

LONDON, Jan 22 (Reuters) - Britain's benchmark share index fell on Tuesday from its highest level in four-and-a-half years, with technical indicators suggesting a rally that drove the market up in earlier sessions would peter out.

The blue-chip FTSE 100 was down 0.5 percent, or 27.95 points lower, at 6,153.03 points in early morning trade.

The index had risen to new peaks this week as an improving economic backdrop drove more investors out of bonds into higher-yielding equities.

However, the FTSE 100's strong run since the start of the year - which has seen the index rise by nearly 5 percent since the start of 2013 - has now put it in "overbought" territory, according to technical analysis.

The FTSE 100's relative strength indicator (RSI) is currently at around 74 - above the 70 point level which shows that an index is technically "overbought" and which is often used by some traders as sign to sell in the near term.

"Following such a strong rally, I would be inclined to take profits with a view to going 'short'," said EGR Broking Managing Director Steven Mayne.

Mayne said he would err on the side of being "short" on the market - namely, betting on a future fall- before going back "long" again to bet on a rise if the FTSE 100 fell to around the 6,100 or 6,000 point level.

FRESNILLO FALTERS

Mexican miner Fresnillo was among the worst-performers on the FTSE 100, falling 2 percent after reporting that it saw stable silver output in 2013 and reiterating it wanted to increase the free float in its shareholding.

Bank of America Merrill Lynch kept a "neutral" rating on Fresnillo, writing in a research note that "near-term overhangs" on the stock included an equity placement needed to meet FTSE free-float rules, and a potential royalty payment in Mexico.

Telecoms group Vodafone also slipped, by around 1 percent, to take the most points off the FTSE 100, which traders attributed to a price target cut on the stock from Jefferies.

Charles Stanley technical analyst Bill McNamara said while he felt the FTSE 100 could reach the 6,215-6,225 point level in the near term, it was still due a sell-off because of its RSI level.

"The caveat to the bull case is, of course, the fact that it is now highly overbought - at 74 percent. The RSI is displaying a reading not seen since March 2010 (following which it fell sharply) and while this not a sell signal per se, it does suggest that some caution is now warranted," he wrote in a note.

Some investors were also holding off from adding to new equity positions as they awaited more earnings reports from Britain's top companies, to gain a better sense of the economic environment.

Deutsche Bank equity strategists wrote in a note that companies in the UK stock market might post results weaker than those of the third quarter.

Data from Thomson Reuters Starmine also showed that top analysts expected that earnings from companies on the UK stock market might underperform by 0.5 percent. (Editing by Stephen Nisbet)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.