Absolute Return Portfolio Management LLC

Equity Market Overview

The outlook for the global equity markets remains negative.

The expected relief rally I mentioned last month has occurred and appears to be complete. It appears that the equity markets have now started another down leg.

I find it quite telling that the AAII Sentiment Surveys showed a remarkable increase in optimism and a commensurate drop in anxiety very rapidly over the past few weeks. This indicated that the public felt it could successfully identify a bottom in the market. Such behavior indicates that the decline is not over as outright anxiety and fear are the prerequisites for a bottom. In other words, fear and skepticism should have been the prevailing emotions at the start of any sustainable rally not a rapid increase in optimism as we saw.

On a positive note, market internals did improve as the market bottomed last month. This could be the sign that a bottoming "process" is underway. I highlight the word process to convey the fact that most significant market bottoms are structures that take some time to develop and involve several price movements back and forth to the price lows as tests of the underlying foundation of the market.

I hope that we will see continued improvement in market internals on any further tests of recent price lows. Such a condition combined with sentiment readings of extreme anxiety and fear would indicate a high probability of a market bottom and sustainable rally.

Our Domestic Equity model is in a defensive (100% cash) position at this time.

Our International Equity model continued to move a very defensive posture and is at a 97% cash position

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We continue to be long International investment Grade Bonds.

We continue to be long High Yield Bonds.

The model is long Gold Bullion and REITs.

We continue to be long the Swiss Franc.

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