* 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 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
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.
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
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
"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
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)