Even after the recent market gyrations, my near-term view has not changed significantly from when I spoke about my concerns in late January. I continue to believe that there will be further downward pressure on equities.

I have a few reasons for this view. First of all, I still do not believe that the magnitude and duration of the U.S. housing market deterioration is well understood. I recently met with David Rosenberg, the North American economist for Merrill. His analysis would suggest that we probably have 4-6 more quarters to go before new home construction bottoms and have seen about half of the decline in this measure. While I don't always agree with David, I think he's got this one right. That said, I have heard a lot of commentary suggesting that we are near a bottom now in housing. I couldn't disagree more.

The other concerning factor is that we are entering the Q1 earnings reporting season. In light of higher labor costs and a decelerating economy, I think investors are going to be disappointed in Q1 after a series of strong quarterly reports in 2006.

That said, a number of short-term indicators I look at are improving. Volatility as measured by the VIX, while moving higher, still needs to go up more. The put-call ratio is looking better (over 1) and suggests that there is more caution in the market. Also the Nova/Ursa ratio has improved significantly. Overall it looks like there is a little bit more fear in the market which generally bodes well for equity performance.

I still have a positive view on stocks for 2007 and continue to recommend a net-long position. After a further near-term decline, I would become more aggressive on the long side. Buckle up! The ride continues.