MARKS & SPENCER (MKS) Very Top Heavy - Short from £4.01p Oct 2005

I would be wary of extrapolating chart patterns across year end when trading is normally very thin as most professionals have taken profits off the table and presumably the last upward grasp in the sp in 2005 is on account of retail investors responding to better than expected news for the retail sector.

I would also be wary in shorting a sector where expectations have until very recently been low. Some sector analyst said on Bloomberg that expectations have been for a decline in like for like sales of up to 4% so there is plenty of room to surprise on the up side.

Finally I would be loath in principle to short a stock like MKS which has impressive free cash flow and declining borrowings in spite of a store expansion,and where considerably more cash/profit can be generated merely by bringing the cost of the supply chain down to BHS levels ( the LEx column at the time of the interims put MKS supply chain costs at 60% or so above BHS )

All this having been stated, the shorters who have recently appeared on this board seem to talk with more logic than those in the not too distant past holding to the motto that if it has gone up it must come down and a modest retrace may not surprise or be a bad thing,BUT I still see more medium term upside if only because of the opportunities for supply chain improvements although I think sales will also grow