Liverpool will still be aiming for the Champions League, but if they do not improve their home form they could even lose seventh spot.
Saturday's match at Anfield started so well for Liverpool, 1-0 up despite a penalty miss, it looked like they would go on and continue to dominate. But Robin van Persie gave them a lesson in cutting edge finishing to defeat them 2-1.
It was supposed to be the match which propelled the club's charge for a Champions League spot- building on their Carling Cup win, instead they find themselves looking nervously over their shoulders.
Only three points behind them in the Premier League are Stoke City and Fulham. To put that into context, Stoke failed to win a single game in the league for almost two months, from the first week of January to the last weekend of February.
Both clubs deserve great credit for their league positions, Martin Jol has turned Fulham around after a difficult start, while Tony Pulis has effectively steadied the ship managing his squad sensibly, winning two games at a key time when the Europa League threatened to play havoc with their season.
Whether they can climb higher will depend on if Liverpool bounce back from their latest home defeat, or fall apart.
Of course Liverpool have one game in hand to push them six points above both Stoke and the Cottagers, but that game in hand is the Merseyside derby at home to Everton- far from a cut and dried three points.
In fact, lose that and Liverpool will only be two points ahead of their blue neighbours, and then they really will be on the back foot.
Naturally there are many permutations that can come from the club's 12 remaining games, but this is hardly the position supporters would have hoped for after last summer's huge expenditure.
Liverpool's fate this season rests still in their hands. While the defeat to Arsenal was a big blow, they host Chelsea and travel to Newcastle. Captain Steven Gerrard has said he has no intention of giving up on fourth spot, and nor should supporters.
Yet a solution has to be offered to their dismal home form, which has seen them fail to beat Norwich, Swansea, Blackburn and Stoke among others.
Is it time to rotate the playing personnel, drop the ineffective Downing and throw in young teenager Raheem Sterling?
Dalglish might as well. Seeing the much-touted youngster in the first team would excite the crowds and would give the team a boost. What have the club got to lose by playing him?
The status quo is not working, so why not mix it up a bit, picking Sterling would also give players like the aforementioned Downing a kick up the backside and show them their places are not guaranteed.
A lift is needed from somewhere, without it, Liverpool's season may just trail off and get worse.
Do you agree that Sterling should be given an opportunity now?http://hereisthecity.com/2012/03/07/liverpool-should-play-raheem-sterling-or-risk-getting-overtaken/?
There has been a lot of talk on the subject of giving some of the youngsters a chance in the first-team this season and especially Raheem Sterling - whose form in the youth and reserve teams has been very good.
But can the people calling for his inclusion in the first-team really know better than Kenny Dalglish, who will have been watching him and monitoring his progress a lot closer than any of us..?
Every Liverpool fan was very excited by Sterling's five goal performance against Southend United in last season's FA Youth Cup, and many were calling for him to get a chance straight after that, but is it possible to integrate a player too quickly?
Alex Oxlade-Chamberlain was born in August 1993, while Sterling is over a year younger having been born in December 1994. So he isn't even eighteen years old yet and to be thrown into a faltering first-team with huge expectations on his shoulders is hardly fair to the lad.
We have seen the likes of Daniel Sturridge and Jack Wilshere benefit hugely from spending some time on loan at Bolton Wanderers under the stewardship of Owen Coyle in recent years. I said myself a while ago that I think Sterling would benefit from a similar move - but I don't think he should be thrust into the world of first-team football at the top league level at the age of seventeen. It could break him to drop him into the physical world of top flight football too soon.
If he is to move into first-team football sooner rather than later, then perhaps a loan move to someone like Blackpool or the like would be a more sensible move.
If he is to get a chance in our first-team though, the best way is to wait until the final couple of games of the season and put him on the bench and consider bringing him on if the game is appropriate.
What do others think of Sterling and any other youngsters?