Absolute Return Portfolio Management LLC

In my last issue one month ago I noted that while caution was still warranted " it appears that the lower boundary of the forecast trading range is being established" and that "I am seeing bullish/positive divergences in some breadth indicators suggesting the the bottom process has begun."

The closing low for the decline actually occurred that day. Portfolios shortly thereafter moved from a defensive position held since mid-October to largely invested.

At present, market internals are quite robust. In fact, the Advance/Decline Line has already moved beyond its January highs even before prices suggesting new high ground will be reached in the equity indexes.

Investor sentiment is also supportive of a continuation of the present rally. As readers have heard countless times before, market tops are accompanied by excessive enthusiasm and greed. Today, the sentiment surveys and Put/Call ratios suggest that sentiment is still cautious and far from illustrating the reckless enthusiasm and cavalier attitude that accompanies a market top.

While there are certain to be short-term corrections of several percent over 1-2 day periods there is no evidence to suggest that the intermediate-term uptrend is at risk. All indexes should see new price highs by at least 5%. Once we get there we'll have to re-evaluate....

Performance in overseas markets is a bit spotty. The strength of the US Dollar has led to some degradation in performance in all overseas investments these past months.

Asia, Emerging Markets and LatAm are the best regions.

Since the market low one month ago, Small-cap Value and Mid-Cap Growth hold the 1st and 2nd spots, respectively, among the Morningstar style boxes and are top-ranked by our equity style model.

We are long domestic investment grade bonds.

Our High Yield Bond model remains on a BUY, favoring domestic bonds.

We are long the US Dollar

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Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings.

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Matthew N. Xiarhos, Founder & Chief Investment Officer