Sentiment at the moment could not be more fragile, with the market up one minute and heavily down the next. In the absence of any positive news it still seems likely that we are going to test the lows of 2008. I mentioned yesterday that I would look at Daily Mail this morning and I took the opportunity to buy in again at £2.535 and my timing was extremely lucky with the announcement of the sale of The Evening Standard pushing the shares back over the £2.60 mark and I sold out at £2.61. Not a huge profit, but a profit nevertheless. Daily Mail is not without risk at the moment given the weakness in the newspaper advertising market. I may again look to trade the stock, but timing is everything at the moment and it is not difficult to get it very wrong. I also traded this morning in a new stock for me, Standard Life. The is one of the insurers which has a fairly solid capital base even if there were to be a further significant decline in the market. The yield is good and does look sustainable. The shares have traded around £2 up until this week and over the last couple of trading days they have been hit along with the rest of the financial sector. I watched the market and how they were performing early on and having touched down to £1.66 and rebounded over the £1.70 level I decided to take a long position at £1.71 and was fortunate enough to sell out at £1.82. Again not a huge gain, but at the moment very short term profits seem to be the order of the day.

My short in Unilever is not going the way I had hoped at present and they are around £1 above my entry level. My stop is not that far away, but I do feel that the recent strength is purely down to investors seeking safety after the second round of financial stock disasters. Whilst Unilever is a good company I am confident that the shares will find it difficult to make much more headway as the year progresses especially given the impact the worldwide slowdown will have on their volumes combined with pricing pressures. Whether the weight of investor funds seeking a safe haven will outweigh this in the short term remains to be seen. Another favourite short of mine, Next, dipped below £11 today having stubbornly stuck around the £12 level since their latest results.

The desperate attempts by retailers to lure customers in December with big price cuts combined with the cut in vat helped to bring the headline CPI figure down from the November rate of 4.1% to 3.1% which was against consensus expectations of a drop to 2.6%. Nevertheless this was a big drop although a lot will have been due to the 2.5% drop in vat. Food inflation fell only modestly over the period and is one of the main reasons why the drop was not as much as most were expecting. The speed of the decline in the UK economy is likely to put serious pressure on prices over the coming months and with oil at current levels I would expect to see this filtering through to energy prices. The prospect of negative CPI looks increasingly likely before the end of the year.

Sentiment in the market has turned very negative over the last 48 hours. The banking sector is experiencing a blood bath and this is feeding through yet again to the insurance sector. Whether this is justified is open to debate. The risk for the insurers lies with the prospect of a further 20% fall in the market which will leave their capital positions looking very vulnerable. For the brave there are interesting opportunities in the life sector, but they are certainly not without high risk and I feel the prospect of a UK life company announcing a rights issue is getting closer.

Tomorrow we will see another bad start to trading and the prospect of a dip below 4,000 looks increasingly likely. I am looking at a few stocks for my long term physical portfolio and I may look again at Daily Mail for my CFD portfolio if they fall far enough in the morning.

A significant sell off today in the banking sector despite the announcement of a second bail out package has again brought sentiment back into negative territory. The rumour we received was of 2 large long only funds making an exit from the sector and as a result there was some serious heavy selling going on. It is difficult to see much if any value now in a sector where there is a real risk of ongoing nationalisation which may end in full nationalisation something which RBS is now very close to following the conversion of the RBS preference shares to equity. The second bank bail out today may well help to improve lending in the economy, but with losses set to escalate even from the huge levels they currently stand at I find it hard to see today's news as any real answer to the massive economic problems the UK faces and ultimately there is a real risk that it will undermine the public finances to a frightening level.

Pearson announced a trading update today and not unexpectedly they expect to achieve a result better than consensus expectations. The outlook for 2009 is clearly difficult especially for a company that is heavily reliant on US States budget allocation which will be under serious pressure as tax receipts decline. Pearson is a well run company that is still likely to achieve modest growth over the coming year, but at this time I find it difficult to trade them unless they move closer to the £7 level where I feel the shares are likely to find it difficult to make much more headway and become an interesting short opportunity. I will be keeping a close eye on them.

A bounce in the market today was overdue after the declines we have experienced during the first weeks of 2009. Whether the market rallies much further is doubtful and will depend a great deal next week on the US reporting season with many big names due to report. It is unlikely that we will see any painting a positive picture and I think we can expect a good deal of volatility as the week unfolds. We do have the end of the Bush era on Tuesday when Barack Obama takes his oath of office. He will undoubtedly deliver a speech full of determination to end the recession and it is not impossible that the market will respond well to this on the day.

In the UK next week we get the CPI figures on Tuesday which will undoubtedly show a further slowdown in the rate of inflation and we can expect this trend to continue for a while yet. On Wednesday we get the Bank of England meeting minutes which will show a 9-0 vote in favour of cutting interest rates and also on Wednesday we get the UK unemployment numbers which will show another increase in the unemployment rate with many economists predicting over 3m out of work by the end of this year. Not much of significance in the US on the economic front next week. Keep a look out for the initial jobless claims on Thursday which will give further indication as to where we are headed for next month's Non Farm Payrolls figure which looks likely to match the previous monthly decline of over 500,000. On Friday we get retail sales figures for the UK and the first estimate for Q4 GDP which could be as bad as -0.9%.

Yesterday I did take a cfd position in Marks and Spencer and I also bought into some Home Retail Group for my physical portfolio. I think at the moment the retailers do offer some good trading opportunities purely because we have just gone through the Christmas trading statements and most share prices are likely to remain relatively strong until we get close to the next set of announcements in the spring. I do feel that there is a real risk that trading will deteriorate further and more downgrades could follow, but at the moment there is a window for trading and share prices at present do discount an awful lot of bad news.

The rumour mill has been working overtime this afternoon. At the centre of it is speculation that Citigroup will be nationalised over the weekend. That would certainly be a big deal and we seem to be heading back into the world of very bad financial headlines. The nationalisation of Citigroup would be a serious setback for world markets and with short selling of the financial sector in the UK about to get underway tomorrow there is every chance the FTSE is heading sub 4000. The UK banks are taking a terrible hammering today with Lloyds close to going sub £1 this afternoon. This is a sector only for the very brave.

Fortunately this morning I managed to sell out my Daily Mail for a reasonable profit. The much publicised ongoing discussion that may lead to the sale of the Evening Standard has kept the share price strong this week, but I feel that it is better to travel than arrive with this news. Even if the paper is sold it will have no material impact on Daily Mail and I feel that the shares may well sell off if a deal is done.

Unilever is remaining stubbornly strong whilst I wish I had shorted Next again this morning with the shares now off 6% on the day.

Despite the plunge in the market today I have little to report. The US retail sales figures were very bad and suggest that the US recession could easily turn into some far more serious than just a deep recession. The impact of the Obama fiscal stimulus package will be critical and whilst I hope that it will have the desired effect I suspect that it will at best provide a small cushion to what is a serious destruction of household wealth which will be very difficult to stop for some time to come.

On Friday in the UK the ban on short selling of financials will be lifted. I think today has shown that the absence of short sellers makes little difference when a sector is under extreme pressure. The downgrade by Morgan Stanley today of HSBC and the suggestion that the company may have to raise in excess of $20bn in a worst case scenario hit the HSBC share price hard. This is one banking stock that until recently has weathered the storm well. If indeed a dividend cut or capital raising is on the cards the shares will have further to fall and will be a clear target for the shorters when they return on Friday. The entire sector still looks in very bad shape with bad debts likely to increase substantially and with margins being squeezed as the base rate falls it will take banks a long time to repair their balance sheets.

No trades today. My Unilever short moved into profit today and I am keeping a keen eye on Next which I would like to short again.

Steady as she goes with the Tesco Christmas trading statement announced today which was a little better than expectations with like for like growth of 3.5% for the seven weeks to the 10th January against consensus expectations of 2.5%. The figure was helped a little with the fact that they reported on a seven week period against 6 weeks last year and benefited from stronger trading during the last week. The Group also opened more stores on the 26th December compared to the previous year which would also have aided the growth number. Nevertheless a positive figure close to consensus is to be appreciated in the current difficult climate.Non food sales have moved in to positive like for like territory against a negative figure during Q3 with a better performance from electrical and clothing. Elsewhere, Europe was a little disappointing with like for like growth slower than the Q3 figure of 6%. Total international sales increased by 32.7% although a lot of this is due to currency movements. The integration of Homeplus in Korea seems to be going well with a reported 50% sales uplift at newly converted stores. Online sales continue to perform well, up 18% to £273m over the seven week period. Overall the shares to me look up with events, but I would certainly consider buying back in if they dropped below £3.30.

Today I closed out the Next short in my CFD portfolio and I am hopeful of getting back in if they move back up towards the £12 level. I mentioned yesterday my reasons for looking at M&S and today I bought a position into my physical portfolio. I am looking only for a quick short term profit as I can't see the shares moving ahead much until later in the year. The retail Christmas trading statements don't appear to have been as bad as many were expecting, but I wonder if Christmas may have included an element of January sale buying brought forward by consumers given the extent of price reductions and sales we saw in the run up to Christmas. If that is the case the first quarter may be far worse for retailers than the market is now anticipating.

Little market moving information today which left the market drifting lower on the day. My current shorts in Next and Unilever are doing well whilst the long position in Daily Mail moved into profit. The market looks set to open lower tomorrow with the weak Dow tonight and this may give me an opportunity to exit one of my short positions. I am also looking closely at another long position in Marks and Spencer if the shares move close to £2.30. I believe that market valuations for the retail sector are unlikely to move ahead much further from current levels and with a stock such as M&S the downside looks limited in the short term given how close we are to the recent trading statement and as a result even if trading is deteriorating we are unlikely to get news of this until March/April at the earliest with final results likely to be announced in May. I will be taking a close look at the Tesco trading update tomorrow which has already been well covered in the press and like for like sales growth is expected to be reported at around 2.5%. Most analysts are turning negative on the food retailers relative to general retailers. As a result we may see weakness over the coming weeks and this may present a good long opportunity. I am still keen on Tesco whilst I believe there may be an opportunity to short Wm Morrison at some stage in the near future.

The US Non Farm Payrolls today were taken relatively well after the ADP numbers earlier in the week. Nevertheless losing 520,000 jobs in a month is not to be taken lightly and with the unemployment rate now at 7.2% the situation in the US is likely to remain dire for some time.

The market does seem to be anticipating the start of an economic recovery at some point before the end of the year, but I do feel that the risks are skewed more in favour of any recovery starting sometime in 2010. If the data continues to deteriorate I cannot help but feel that there is a real risk of the markets testing the 2008 lows. I don't wish to be overly negative, but it is hard not to when the major indicators are still deteriorating.

Yesterday I bought a few Marks and Spencer in my physical portfolio towards the close of trading and I have sold them today at a nice profit. I remain unconvinced that the retail sector is going to rally much further from here, but with the news yesterday in the US of awful conditions for the major retailers which hit the UK retail stocks hard it did seem likely that we would see some form of bounce today given that the M&S results are behind us. I still have the CFD short in Next.

The 50bp cut in the UK base rate today is not unexpected although a lot of commentators were expecting a full 1%. The decision today does now leave room at least for a further two 50bp cuts over the coming months if necessary although the BofE may now resort to quantitative easing first to see what impact they can generate. I still suspect that rates will fall back close to 0 over the coming months.

The reported weekly initial jobless claims in the US were down although a little better than expected which may help sentiment although I fear the Non Farm Payrolls will be very bad although may have less impact now that the market has digested the equivalent ADP numbers yesterday.

With the weakness in Daily Mail today I decided to take a small long position especially with the market again weak. I have set a strict stop loss especially with the company due to update on trading in early Feb. This is a company that is going to suffer this year, but the dividend looks safe and any sign of an upturn will be very beneficial for the share price.

Dismal results from the US retailers today has taken its toll on the UK stocks and I am happy with the progress of my Next short which I am going to hang on to a bit longer.

The ADP employment data announced today was just awful and shows the extent of the problem facing the US. With an estimated 693,000 jobs lost in December the US is no where near a bottom and the Non Farm Payrolls on Friday are likely to show a very similar figure. Even with the Obama fiscal stimulus package it is difficult to see any meaningful recovery for some time and when you look back in history at previous stimulus packages they generally have had only limited short term impact especially if they come in the form of tax cuts resulting in the recipients increasing their savings rates rather than spending. The recent market rally may well end up being capped and it is notable that as of yesterday the FTSE100 had already exceeded some brokers year end forecasts!

Investors hoping for signs of an improvement in the economic outlook are likely to be disappointed over the coming weeks. There is still little sign of any improvement in economic conditions and if anything we are seeing further deterioration. In the US today factory orders were reported to have declined twice as fast as anticipated during November combined with a downward revision to the October number. The ISM Non Manufacturing Index was a little higher than expectations at 40.6, but still the second lowest figure on record and a clear signal that the US economy remains in the depths of a very significant recession. Pending sales of existing homes fell again in November. One of the key issues that need to be cleared before any kind of recovery can occur is stability in the US housing market, but with stocks of unsold homes way above the average it is difficult to see any kind of stability returning for some time and forecasts of a further decline in home values this year of around 15% in the US are probably not far off the mark. Bearing in mind that this will be the fourth year of falling house prices in the US does provide real concerns for how things will play out for the UK market.

The retailers trading updates kicked off today with Debenhams and Next. I do not follow the former although the figures on the face of it did not look too bad. The same could also be argued of Next, and the shares have responded strongly today with a 12% rise in the share price. I did take a close look at the figures and the greatest concern for me is that whilst they reported a 7% like for like decline in sales during the 21 weeks to the 24th December, bearing in mind that they reported a 4.4% decline for the 14 weeks to 1st November it does suggest that like for like sales growth for the 7 weeks to 24th December deteriorated badly to around -12%. If this trend continues into the New Year 2009 could be a lot worse than the market is currently anticipating. Sentiment however does appear to shifting in favour of the retail sector, but nevertheless with a strong performance in the shares today I decided to open a small short in Next. With a P/E of around 8x and a yield that is now under 5% I believe the shares are starting to look fully valued short term although at the moment with the market seemingly set on a strong January rally they could easily move ahead further which is why I have set a firm stop loss.

The next couple of weeks will focus attention on the retailers. Coverage of the disaster in the high street has been extensive over the Christmas period with many big names disappearing and the Sunday press had a field day with reports of how bad the M&S statement will be on Wednesday. Lots of commentators are suggesting that valuations have baked in the worst case scenario. I suspect not, and there is room for further downgrades and weakness in this sector. Nevertheless we cannot be far off the bottom with some of the big names such as M&S. I am keen to acquire some M&S for my physical and CFD portfolio but I would rather pay around £2 or less bearing in mind the strong likelihood of a dividend cut being announced at some stage this year. We kick off with a statement from Next which I am expecting tomorrow. On Wednesday we have M&S and Sainsbury on Thursday. I believe that valuations for the food retailers are starting to look a little high whilst the non food retailers may well offer some long opportunities over the coming weeks.

This week look out for the ISM Non manufacturing index tomorrow in the US. The manufacturing ISM data on Friday was bad and clearly shows that the US economy is still some way from a bottom. The big data of the week will be the Non Farm Payrolls on Friday in the US. These have scope to be awful and a big figure of over 600,000 jobs lost cannot be ruled out.

A New Year but the same issues to deal with and the next few months are unlikely to be any easier than the end of 2008. What we can hope for and expect is some form of equity market recovery before the year is out although probably not a strong one. It was interesting to read all of the forecasts from the equity strategists for the current year. As always none are expecting the market to fall and the odd one is expecting a very strong rally before the year is out. After the heavy falls of 2008 it would be difficult to predict further equity market falls during 2009 although I do believe there is a small probability that the FTSE will end the year weaker. All will depend on the timing of recovery in the US and the size of the Obama fiscal stimulus package will be key with a $1 trillion dollar figure more than likely. The real risk for the current year is deflation. It seems likely that it will arrive and it is more a question of how short lived it will be and indeed if there is the possibility of deflation quickly returning. Unemployment will rise significantly this year and there will be a significant output gap in the UK and the US which could very easily result in deflation becoming firmly entrenched and that would be very bad news for equity markets.

Still the market seems to be starting the year with a positive mindset and I think there must be a real possibility of the rally we have seen continuing during January. The arrival of the Obama administration will inevitably help, but unless we see the economic data starting to show some signs of at least stabilising I can't help but feel a rally early in the year will soon be lost. Today we kick off with one of the most important pieces of monthly economic data in the US namely the ISM Manufacturing data. It is already sitting at a historically low level and further disappointment will not help. Expectations are for the December figure to be somewhere around 35 and another significant miss may mean the rally ends today! I think there is a real chance of a miss with this figure which is likely to remain weak for sometime and a big miss will suggest that the US is nowhere near the bottom yet.

During the last few trading days the only action I have to report is a sale of my last holding of Tesco which had recovered well from the lows of £2.90 seen towards the end of 2008. I sold out at £3.61 and will look to buy back in if the shares move below £3.30 over the coming weeks. I see today that Daily Mail is trading at £2.90 which I think is a little expensive and I am hopeful of being able to trade this stock again this year if it moves back towards £2.50. The advertising market is going to remain very difficult this year and whilst Daily Mail will be a great recovery stock it is too soon to be taking any long term holdings and I would prefer to wait for more short term trading opportunities.

I still have the Unilever short in place and looking at the Asian markets where a good percentage of their profits are made I still believe that 2009 will be a difficult year for Unilever and the shares will struggle to make headway.

Just a quick post to report that I sold out of the Daily Mail on Tuesday morning with another profit allbeit smaller than previously. With the shares trading at £2.65 I felt it would be better to close out for a smaller profit before the Christmas break. I still have the Unilever short which is in profit and I will run with this holding into the New Year.