The US housing starts yesterday surprised on the upside which led some to suggest that the bottom of the US housing market is near and the market seemed to respond well to this and the PPI figures. I don't think the housing market is likely to stabilise just yet given the historically high level of inventory which remains at over 13 months of supply. Once this has reduced to around 8 months we may start to see some signs of improvement, but that is some way off yet.

I am being bombarded with questions as to whether this current rally marks the end of the bear phase and whilst it is quite possible that the current rally may well have further to run I fear that this is just a bear market rally and it will correct soon. I think earnings forecasts have further to fall and with dividends being cut or at risk of being cut across many sectors it is difficult to see that we have the foundations for a sustained recovery.

The FOMC announces the results of its two day meeting tonight and the tone of the accompanying statement will be what everyone is looking at. Rates have nowhere to go so any statement as to whether the Fed feels the recession is deepening and what additional measures they intend to take will be very much the focus of investors attention.

It is difficult to see where the market may be going over the very short term. Sentiment appears to have improved, but the economic situation certain hasn't and whilst it is entirely possible that we could see the momentum of the last few trading sessions maintained I think that the economic data will again get the upperhand and before long we will be heading south. The severity of the slowdown and the fact that there is no evidence yet of even stabilisation in the economic numbers to me will again leave markets under pressure. After the latest correction which took us down from over the 4000 mark of the FTSE100 to around 3,400 we can at least see some possibility of range trading and I think there are quite a few stocks that look good value and are lending themselves to trading again. During the last week we have traded Vodafone twice and may well do so again if they drop below £1.20.

Today in the US we get the housing starts data which will inevitably have dropped again, but I don't see this having a material impact on trading this afternoon. Tomorrow should provide volatility in the US when we get the FOMC statement and I suspect that any news on additional action the Fed is taking along the lines of quantitative easing will be taken positively and with Bernanke taking a more positive stance about the recession ending in 2009, we may again get a bullish statement that will help the market along.

Our usual Monday briefing:-

World equity markets found a better footing last week following the leaked Citigroup memo that the bank has enjoyed a strong January and February. Comments from Ben Bernanke seemed to help as well and sentiment in general seemed to improve as the week wore on. Whether this marks the beginning of a recovery is another matter. The US initial jobless claims seemed to go unnoticed despite the fact that they worse than expectations with initial claims for unemployment benefits up by 9,000 to 654000 for the week ended 7th March. This was against consensus expectations of 644,000. Claims for the previous week were increased by 11,000 to 645,000. With a deteriorating labour market it was hard to view the better than expected US retail sales figures as a sign of stabilisation especially if you consider the substantial deterioration in auto sales. Nevertheless with the economic data remaining at awful levels we have to assume that we are at least in the middle of this recession particularly from a US perspective and we would hope to see signs of stabilisation in the numbers, especially the employment data within the next quarter.

The UK trade figures for January were bad with the trade in goods deficit widening from £7.2bn to £7.7bn in January. Clearly despite the weakness in sterling the worldwide slowdown is more than offsetting any potential benefit to exports that would normally be expected. China suffered a similar fate with exports down 25.7% year on year during February with imports down by 24.1%. The collapse in the latter seems to suggest that there has been no sign of stabilisation in the Chinese economy over the last month.

Overall very little economic data last week which is one of the factors we believe behind the market rally. Looking at this week, today we get the final Eurozone CPI data for February. On Tuesday we have the German ZEW economic sentiment survey which is closely followed and is very likely to show a further deterioration. On Wednesday we get the minutes from the latest Bank of England MPC meeting which is likely will show a 9-0 vote in favour of the latest 50bp cut. What will be of more interest will be their comments on quantitative easing. We also get on Wednesday the headline grabbing unemployment data which is likely to show unemployment has increased to over the 2m mark. On Thursday the February public borrowing data for the UK is published and the CBI Industrial trends survey for March will also be announced. Also on Thursday we get the Eurozone Industrial Production data for January.

In the US on Monday we get the Empire State manufacturing survey for March which is basically a survey of manufacturers in New York State. It is unlikely this index will show any improvement on the Feb figure of -34.7. On Monday we also get Industrial Production figures for February. The previous month on month decline for January was -1.8% with the consensus anticipating a decline of -1.2% in February. Given the disastrous state of the car manufacturing industry the probability of a figure worse than this seems high. A closely followed indicator are the housing starts which are scheduled for Tuesday. The annualised rate dropped to 466,000 in January and this is expected to fall again to 450,000 on an annualised basis in February. In many respects a continual decline in new house builds will help to bring inventory down and this may at least contribute to bringing a recovery in house prices a little closer. At the moment total inventory of unsold new homes stands at over 13 months of supply. On Wednesday look out for the CPI data in the US which is expected to remain at the previous monthly level of +0.3% month on month which will leave the year on year rate at 0%. On Wednesday the FOMC meet and whilst interest rates have nowhere to go now, the focus will be on the accompanying statement and especially additional measures that the Fed is taking now that monetary policy has run out of ammunition. On Thursday we the usual weekly initial jobless claims and also the Philadelphia Fed manufacturing index for March. The previous figure for the latter in February was 41.3 with consensus expecting around 38.0 for March. On Friday with no economic data scheduled the market will be focusing on the next Ben Bernanke speech.

This week we will be focusing on the Prudential full year figures scheduled for Thursday which will have broader implications for the rest of the sector.

A busy week for me with little time for the blog. I started the week believing that if we were going to see some form of rally this week had a reasonable chance because of the lack of major economic data. Today's US retail sales were the big number of the week and they were a little ahead of expectations although if you look at the drag caused by Auto sales it is hard to interpret the figure as a sign of recovery. We also had the weekly jobless claims which continue to show a worsening trend. Still the market has focused on the Citigroup memo from yesterday and the lack of any bad news this week to make an attempt at a rally which looks like it will continue into tomorrow. It would be nice if this marks the beginning of a sustainable recovery, but I fear it will not hold and we could see the gains eroded next week. This is a particularly difficult time for trading as a rally could easily last for a little longer and it does make the timing of trades more difficult.

In my cfd porfolio I have the long position of Unilever which is gradually returning to break even and for some short side protection I have the short in Pearson.I am again looking at another long position in Vodafone, but it depends on how the market behaves tomorrow.

A big rally and a welcome one after so many weeks of relentless declines. The Citigroup CEO made bullish comments about trading during the first two months of the year to give the financials and the market in general the excuse to make the biggest rally this year. Positive comments from Bernanke also helped to fuel the rally today. It is interesting that several money managers have already started calling this the bottom of the market. Today's comments were certainly welcome, but I am not sure that this is the bottom of the market. It may well mean that we will rally further as the market certainly looks oversold on a short term basis. It will be interesting to see if the market maintains the momentum tomorrow.

For my cfd portfolio I managed to make a small profit on a holding of Vodafone which was purchased yesterday and sold this afternoon. I may well buy these back in due course. I also opened a small short in Pearson this afternoon after they moved ahead by 7% on an intra-day basis. I have nothing against Pearson, but the shares look to be up with events at the moment and I think the upside is limited with real downside risks over the coming year. I still have an open long position in Unilever and decided to balance it up with a Pearson short this afternoon.

The big test this week comes with the US retail sales figures on Thursday. I would anticipate this figure to be worse than the consensus of -0.5 month on month and it will be interesting to see how the market reacts.

Our usual Monday briefing:-


The economic data we had last week was unsurprisingly very bad with no sign of any stabilisation in the rate of economic decline especially in the US. Both sets of ISM data, manufacturing and non manufacturing remain well below the crucial 50 level which indicates expansion and looking at the constituents of each index there is little chance that we will see any material improvement for some months to come. The Federal Reserve Beige book presented a grim picture of reduced lending, tight credit and a continuing slow down across all aspects of the economy. The Non Farm Payrolls on Friday were always destined to show a big decline and the only positive was that the number was not larger than consensus expectations with 651,000 jobs lost last month. The previous two months data were revised downward by a further 160,000 jobs. In the UK and Europe the interest rate decisions were as expected with the Bank of England reducing rates by 50bps to 0.5% whilst the ECB also reduced rates by 50bps to 1.5%. Monetary policy in the UK has now run out of fire power and the Bank of England signalled its first foray into Quantitative Easing with a £75bn injection to begin almost immediately. The ECB signalled that rates are close to bottom and it looks as if we can possibly expect one final cut to 1% before other big measures such as Quantitative Easing are adopted.

The coming week brings little in the way of big economic news. In the US look out for the retail sales figure on Thursday. Retail sales bounced in January probably due to an element of deferred expenditure from December and also the impact of heavy discounting. This trend is unlikely to continue and the consensus expectation is for a 0.5% decline during February. In the UK on Tuesday we get the RICS house price survey which will inevitably be weak and on the same day there will be industrial/manufacturing production data. Apart from that there will be German CPI data on Tuesday and French CPI data on Thursday. On Friday look out for the Eurozone retail sales data for January which may also show a very modest improvement at best.
This week we have a trading statement from Home Retail Group (owner of Argos and Homebase) on Thursday. This will have significant implications for a lot of the retail sector given that it will be the first major trading update of any big general retailer since the Christmas trading statements. On Thursday we also have full year figures from William Morrison and Standard Life which we will be taking a close look at.

The life sector was in focus last week following results from Aviva that disappointed the market and resulted in a share price slump across the sector. We have been asked by clients during the week whether this sector will be the next disaster following on from the banks. At the moment it is clear that fear is driving valuations far more than fundamentals, but the fear could turn into reality. The issue is again solvency and the fear at present primarily relates to their substantial corporate bond portfolios that these companies have. Under normal circumstances AAA corporate bonds will result in minimal defaults with historical default figures of around 0.3%. The severe deterioration in economic conditions may well result in a much larger default rate, but it remains an unknown. The Aviva results were not that bad and the stock price decline was more a result of intense shorting pressure than any substantial deterioration in the underlying position of the company. Their decision to maintain the dividend could arguably be read as a sign of strength, but the market took it as a major negative given the implications for their IGD surplus capital position. If equity markets improve and there is some evidence that an economic recovery is coming we may well see Aviva escape the possibility of a dividend cut, but at this stage that looks unlikely. The concerns are real and they may be applied to the rest of the sector. However, at this time we would not write the sector off and in the event that markets do start to recover it will offer the potential for significant recovery. We will be updating our Aviva note this week.

Any attempt at a rally quickly peters out and I think we are now heading into the capitulation stage when just about everyone apart from the heavy weight shorters start to give up. Valuations do not look bad, but I think it is inevitable that the market is going to weaken further over the coming weeks. The US payroll figures this afternoon provided little in the way of hope and the only glimmer if you can call it that is the number of 651,000 lost jobs during February was broadly in line with expectations. The December and January figures were revised downwards by 160,000 in total and the latest figure is therefore a slight improvement in the trend. Nevertheless it is bad and with all of the data this week showing no sign of even stabilisation I think we have to prepare for yet further market falls. Morgan Stanley have today revised their 12 months FTSE100 target from 4300 to 3500. I remember commenting at the start of the year that every year end FTSE100 broker target would have seen the market gaining on the year. This is starting to look like wishful thinking.

A busy week for me and my blog posts have had to take a back seat. Yet again the data this week has been awful. The market feels as if it is in freefall and is looking for a base. At present it is impossible to predict where the current correction will find a floor. In the US the ISM data was poor as expected and the biggest concern has to be the ADP employment numbers which were worse than expectations with a decline in private sector employment of 697,000 last month. This must mean that we are on course for a big decline in the Non Farm Payrolls tomorrow somewhere close to -700,000, but potentially larger.

The house price data in the UK today from the Halifax confirms the ongoing bleak outlook whilst the Bank of England interest rate decision was not unexpected. Monetary policy is now spent and the BofE can now only look to quantitative easing to boost economic activity. They now enter unknown territory and the impact short term and long term of pumping money into the economy is difficult to estimate, but what is clear is they have to do it.

I wonder if the insurers are going to take the place of the banks now that the shorting community have focused their attention in the sector. The results from Aviva today highlight the risks these companies face particularly with their significant corporate bond portfolios where provisioning is likely to grow although the final default bill may well be less than they are providing for. I suspect the sector is in for a tough time over the coming months, but it will be a sector that remains in good enough shape to recover well when times improve, something that cannot be said of the banking sector.

No activity on my CFD portfolio at present with the market more unpredictable than ever it is a lot easier to watch and wait. Tomorrow afternoon could be particularly interesting with the US unemployment data.

Very little to report today so I have reproduced an extract from our Pearson note following their results earlier this week:-

Pearson produced a strong set of full year results this week as anticipated following their Q4 trading update in January. Sales were up 8% at constant exchange rates to £4,811m with pre tax profit at £674m (2007 £549m) and clean eps of 57.7p (consensus earlier in the year was 52p). The total dividend for the year was 33.8p which was a little shy of expectations. However, this was a good result given the harsh economic climate and it reflects the resilient nature of the educational publishing division which represents over 50% of profits. The share price of Pearson has been rewarded for its more defensive characteristics despite the more cyclical nature of some aspects of the company’s business such as the FT and Penguin publishing. In February last year the shares were trading around £6.50 and remain at that level today which is an impressive performance against such a substantial decline in the overall market. The question is whether Pearson’s resilience will remain and if the momentum of the last few years could be about to stall.

Pearson generates around 60% of sales in the US. The strength of the dollar boosted sales by £320m and operating profit by £76m. Acquisitions added £199m to sales and £35m to operating profit. In addition because a lot of their debt is dollar denominated, currency movements added £410m to net debt to bring the total exposure to £1,460m. Net debt/EBITDA remains at a comfortable 1.7X and interest cover stands at 8.7x. Total free cash flow increased by £224m to £631m. All divisions made a better than expected contribution.

In the outlook statement the company re-iterated that trading towards the end of 2008 had become more difficult and they anticipate this to continue throughout 2009. There was mention that cost savings would be found to help mitigate the slowdown and they anticipate that the company will deliver earnings for 2009 at the same or a similar level to 2008 which equates to eps of around 57.7p per share. Given the strength of the 2008 results it is a little disappointing to already be guiding on a similar result for 2009. This does limit any upside in the shares and if anything we feel that the risk is to the downside.

Given the significant contribution that education provides to Pearson’s results we have to examine the downside risk. Given that this is primarily a US based business that is dependent on US State budgets the risks are clear. We know that the Obama fiscal stimulus package has earmarked funds for education, and undoubtedly this will benefit Pearson. However, it must also be borne in mind that with tax receipts in free-fall most State budgets are heading for significant deficits and whilst education remains a priority for them it is hard not to see pressure mounting to cut educational spending. This is a theme that we are going to see in Pearson’s other international markets.

Educational book sales are also likely to suffer as students adopt a policy of buying second hand books rather than new as they struggle to fund themselves through their education given the lack of jobs suitable for students. The FT was reported to have experienced a decline in advertising revenues during the fourth quarter of 2008 and it is difficult not to expect this trend to continue during the first half. Penguin publishing will also not escape the downturn. Recent results from US publishers suggest the market is turning ugly. Revenue at Harper Collins US operation was reported to have declined 25% for the last quarter of 2008 which was primarily due to the weak retail environment. Many US book retailers are having a hard time of it with declining revenue and this will have inevitable implications for Penguin.

It is difficult to be too negative about a company that has clearly bucked the trend over the last year and the share price has been incredibly resilient. We do not expect a sudden catastrophic deterioration in Pearson’s trading, but we do recognise that even the best will struggle to avoid the severity of this downturn. The shares are trading on a forward rating of 11.2x earnings and a prospective dividend yield of 5.2% and we will be looking to incorporate Pearson into our shorting strategy if the shares strengthen from current levels.

A very bad two days for world markets and we are clearly now at a stage where no one knows where the point is at which a degree of stability will return. On a fundamental basis I think we will soon reach at least a short term floor. A great deal depends upon the US market and I have read several reports which are looking for a floor on the S&P500 of around 600 which means possibly another 15% in the US and this could easily drag the FTSE100 closer to the 3,000 level. There are cheap stocks out there which are getting cheaper and at some point we will see a short term bounce which could be quite significant the further we fall. At the moment the fear factor has definitely taken hold and undoubtedly there will be more and more fund redemptions which will result in forced sales and more market weakness. Nevertheless with the FTSE100 seemingly on a path towards the 3,000 level I will not be losing sight of the fact that at some point a recovery will come and in whatever shape or form good quality stocks will benefit.

My CFD portfolio position in Vodafone was stopped out today. I never find it easy to cut a loss especially on a good stock, but with the risks of further downside in the market there may well be an opportunity to buy back in at a lower level. At the moment capital preservation is the name of the game.

A terrible day for world stock markets and the real concern I have is that there is nothing to prevent sentiment and the sell-off deteriorating further. What is needed is some evidence that economic conditions are stabilising and this week is unlikely to provide that. Stop losses in the current market are very important. No activity on my cfd portfolio today and if we see another significant sell-off my Vodafone holding will be at risk of being stopped out. Sometimes when markets are suffering from a very significant correction over a short time frame you have to accept that stop losses will be used. I have listed below our normal Monday briefing.

Another week dominated by huge banking losses and grim economic data. The US S&P 500 hit a twelve year low and the Japanese Nikkei 225 fell back to levels not seen since 1982. The UK FTSE100 remained firmly below the 4000 level. US consumer confidence plunged to an all time low and Bernanke in his speech at the Senate Banking Committee in Washington said that the US economy is in a severe recession contraction and warned that the recession may last into 2010 unless policy makers can stabilise the financial system.

Not a huge amount of economic data In the US last week, but what we did have gave little hope for recovery in the next few months. The level of consumer confidence in February declined to just 25.0 from 37.4 in January. This was a historically low level and suggests that the rate of consumer spending over the coming months will continue to decline as consumers cope with increasing unemployment, destruction of their wealth and a need to increase their savings rate to start rebuilding their own shattered balance sheets. Also in the US last week the Treasury announced details of its ‘stress test’ for banks with more than $100bn in assets. The basic idea is a forward looking assessment of the impact of an ‘adverse’ economic environment. If this shows that a bank would not be able to ‘comfortably absorb losses and continue lending’ then they are given six months to raise additional capital privately or tap into the Treasury ‘Capital Assistance Program’.

Absolutely no sign of housing market stability in the US, with existing home sales down 5.3% month on month in January to an annualised rate of 4.49m which was below consensus expectations of 4.8m units. Interestingly foreclosures accounted for a massive 45% of all activity which demonstrates just how bad the market is. With over 9 months of supply available it is difficult to see the US housing market reaching a bottom for several months yet. New home sales declined by a very significant 10.2% month on month to a record annualised low of just 309,000 units against expectations of 330,000. The inventory of new homes available for sale stands at over 13 months of supply. It looks increasingly like we will have to wait for 2010 before there is any real sign of an upturn in prices.

The weekly initial jobless claims were again higher than expectations and we now look to be on course for a non-farm payroll figure to show in the region of 700,000 more unemployed during February. Durable goods orders for January fell by 5.2%, more than twice as bad as anticipated by the consensus. Finally, in the US we had the revision to fourth quarter GDP which was revised down from -3.8% to -6.4%, quite a significant revision although not totally unexpected given that the consensus expected a decline to around 5.8%. There is no doubt that the US recession is very severe and the question now is how long it will take for conditions to at least stabilise. The first quarter of 2009 is probably going to be close to as bad as the fourth quarter of 2008, but given the severity of the decline we may well be close to the worst stage of this correction.

In Germany a report showed that exports fell by a very significant 7.3% quarter on quarter rate which was clearly a primary reason for the 2.1% decline in 2008 Q4 German GDP. Inventory accumulation helped to mitigate the decline in GDP by 0.5% which as in the US suggests that inventory rundown will be a factor during Q12009 which is likely to contribute to another hefty decline in GDP. Japanese factory output fell a record 10% during January. Trade data for Japan was again awful with exports down 45.7% year on year in January. Breaking the figure down, the decline was widespread with exports to the US down 52.9%, Asia down 46.7% and Europe down 47.4% with the rest of the world declining by 34%.

UK house price data published by the Nationwide last week demonstrated clearly that the recent Halifax data which suggested house prices had started to recover was an anomaly. The seasonally adjusted data from the Nationwide for February showed a 1.8% decline, the sixteenth consecutive monthly drop. According to the Nationwide data, the peak to trough decline in house prices during the early 90s was 20.2%. Since the October 2007 peak, the decline has already been 20.59% according to the Nationwide who actually register the largest peak to trough decline of all the house price data providers. Many analysts suggest that house prices remain on course for a further fall of around 15% to 20% this year and another 5% to 10% decline during 2010.

GDP data for the fourth quarter was unrevised for the UK at -1.5%.

The first week of the month always brings a lot of the major US economic data. Today we kick off with the Institute for Supply Management Manufacturing Index which is expected to continue bouncing along the bottom which consensus expectations of 33.8 for February against the January figure of 35.6. The US manufacturing sector looks set to continue contracting for some time yet and given how depressed this index already is we feel it is unlikely to have a material impact on market sentiment unless it is a big miss. On Wednesday we get the ISM Non Manufacturing data. The January data did show a 3 point improvement to 42.9 and the consensus is expecting a modest decline from this level to 41 for February. Also on Wednesday we get the ADP employment report for the private sector which is always used as a guide for the Non Farm Payrolls due on Friday. The ADP report is likely to show a decline in private sector employment of between 550,000 and 650,000. The Beige book is published on Wednesday and this will undoubtedly show a continuing grim economic picture across the US when each of the Federal Banks reports on current economic conditions in its district. On Thursday in the US we have factory orders for January and the weekly initial jobless claims figure. This leads us into the big number of the week, the Non Farm Payroll data on Friday. The consensus is looking for a decline in employment of 645,000, but looking at the trends in the initial jobless numbers, this figure could easily exceed 700,000 which would almost certainly upset the market during Friday afternoon trading.

The UK and Euro zone data is not that significant this week. We have more inflation data for the Euro zone today whilst in the UK we get consumer credit data and mortgage approvals for January. On Wednesday we have Euro zone retail sales data which is likely to show a decline over January if the consumer confidence data is anything to go by. On Thursday we get the Bank of England interest rate decision and it is widely anticipated that rates will again fall by 50bp leaving us with a base rate of just 0.5%. The ECB also announces its interest rate decision on Thursday and we anticipate a cut of 50bp as well to leave the Euro rate at 1.5%.
This week we will be updating our research note on Pearson and we will be focusing on the Pearson full year results scheduled for today.

A quick trade update. I closed out my Next short on Friday for a nice profit after the heavy fall in the FTSE100 and the shares actually rebounded shortly after closing the position. I may well look to enter another short if the shares do move back up towards the £12 level. The market looks as if it is going to open weaker in the morning.

The words of Obama on his budget proposals appear to have drowned out the very bad durable goods order figure for January which was down by 5.2% more than double consensus expectations. This is the sixth consecutive fall with a previous month decline of 4.6%. Looking at the breakdown of the figure, inventory continues to decline and was run down at double the rate of December which demonstrates the likely impact on Q1 GDP of inventory declines. Excluding the impact of a 35% decline in defence orders, durable goods orders decreased 2.3%. Overall another bad figure and it would be surprising not to see a seventh decline next month.

Sales of new homes have fallen to a record low of just 309,000 on an annualised basis against consensus expectations of 324,000. Also today the weekly initial claims figures jumped to a monthly run rate of 667,000. It looks like we are on course for another huge non farm payroll figure next week of close to 700,000 out of work in one month.

Overall, nothing at present to suggest even a bottoming process is under way.

The market has certainly had a better day for a change driven on by the financials and very strong performances from the insurers with the likes of Legal and General up by 27% on the day. Not the kind of daily share price performance you would think for insurers 12 months ago. It just goes to show that at present the market finds it impossible to value these stocks. A sector only for the brave I think.

I did today take a short position in Next. Despite the better than expected retail sales data of the last month or so I am convinced that consumer spending will remain on a downward spiral. You only have to look at the house price data for today which to me suggests we are on course for another 20% decline in house prices this year. The consumer will respond to this and increased unemployment in only one way and that is reduced expenditure. The retailers have enjoyed a better performance so far this quarter, but I believe it is too soon to expect any kind of sustained recovery.

Little to report today. We had speeches from Obama and Bernanke within the last 24 hours. They were of course positive and this seemed to help the market a little, but it does nothing to change the outlook over the short term. Tomorrow we have the durable goods orders in the US which will shape trading tomorrow afternoon. A decline of around 2.5% during January looks to be on the cards and anything worse will almost inevitably result in a further market decline.

A very difficult market to call at the moment. Last year when the FTSE100 hit around the 3,800 level it bounced back above 4,000. At present it certainly has the feel of a market that is going to reach a new low. The fundamentals are deteriorating with earnings still being cut and dividends either being cut or clearly very at risk over the coming weeks and months. There is just no positive news flow whatsoever and for that reason the market is very susceptible to a move down to perhaps 3,500. A lot depends upon the performance of the US market and again it is very easy to see the S&P 500 below 700 and the Dow below 7000 anytime soon. However, if by some miracle we do get even the smallest piece of good news we could see a sharp albeit brief rally. At present we are focusing on only relatively defensive stocks and I am happy to keep my Unilever which is around 2.5% off the purchase price and the Vodafone which is around 7% off the purchase price. Both are still a fair amount away from my stop-loss targets, but that is not to say that a further significant decline won't bring them closer. The last stop loss we hit was in October last year when we had the major sell-off and at present there is a real risk of this happening again. I am looking at short possibilities which include Pearson although I will be awaiting their results on Monday before taking any action on this. They are on course to deliver a good set of results, but I believe the outlook statement will be very cautious and there may be an opportunity to short the shares. Tesco at the moment appears to be moving closer to being a potential short. More than one broker has started to raise concerns over the forthcoming results in April and an article in the last Sunday Times suggests that their US operation is now struggling. This may well turn the market against Tesco if it proves to be true.