Worries about US corporate earnings and slightly inflationary data sent the London market lower yesterday.
The FTSE 100 fell back, reversing Monday's gains and continuing a trend that is conforming to a classic chart model.
Some call it an arrow head and others a funnel, but in essence the market has spent the past six months narrowing slowly towards a point with falling peaks and rising troughs. At the start of the year it ran down 900 points to 6,000 which has been a strong support level.
However over the past few weeks it has dipped no lower than 6,200 and chart analysts say that it is trying hard to break through a peak of 6,500.
"The narrower the range the more violent the break-out will be," said one dealer. "The problem is that no-one knows which way it is going to break."
Yesterday's signals were generally on the cautious side. The latest US inflation data showed a rise of 0.6 per cent in the headline rate which includes energy costs. That was up 5.6 per cent in one month and well above the consensus forecast rise of 0.4 per cent.
The underlying rate was steady and in line with forecasts but the bear case won through.
Also, there was a slew of heavyweight US company figures out yesterday, including Apple, Microsoft, Merrill Lynch, General Motors, Time Warner and Philip Morris.
More significantly, the big technology stocks, which contained a large dose of uncertainty because of the recent volatility in the sector, were reporting after the UK market closed.
In Britain, the Chancellor of the Exchequer's comprehensive spending review was confidently presented but contained no strong surprises. Although government bonds were up by the close, the equity market took Wall Street's lead and closed 75 lower at 6,450.5.
The FTSE 250 fell 38.9 to 6,749.9 and the Techmark 100 dropped 26.63 to 3,656.59. However, the SmallCap was steady at 3,392.1.
Mr Steve Wright, at Credit Suisse First Boston, remained confident that institutions were waiting to buy but said that any sustained buying might not happen until after the US interest rate meeting in late August - the last before the country moves into the presidential election.
"If you look at the chart, Footsie is still stuck in a range but it looks like it will break out on the upside.
"Equities are very good value compared to the bond market and the equity earnings yield ratio is very close to the low end of the range but we need to continue to be confident that interest rates in the UK have peaked," he said.
