Absolute Return Portfolio Management LLC

I indicated then that I thought the broad market would at least re-test the March lows and lose about 10% of its value with a higher likelihood that the correction would go to 20%.

Last week, the obvious cracks appeared with most indexes declining several percent. The losses have continued so far this week with increasing volatility. The Value-oriented indexes, having heavy financial industry weightings, have faired quite poorly. Growth-oriented indexes, particularly those in the Mid and Small-cap region have been able to push to new highs before last week's retreat.

This brings up an important point; in my view the greatest risks today in the equities markets exist in the Mid-Cap Growth, Small-Cap Growth and NASDAQ 100 indexes. These three areas, in particular, are excessively overbought and subject to some violent air-pockets in the coming weeks. I believe that what occurred is that, as the market bottomed and started a rally attempt in the spring, investors avoided the value-oriented stocks like the plague and jumped onto the areas that had previously exhibited good momentum like the Mid-Cap Growth area. This created a self-fulfilling prophecy as a great deal of capital poured into a relatively small region of the market due to its strength. Today, however, all of that buying has left this and the aforementioned areas subject to significant profit-taking. One definition of a bear market is poor or narrow leadership and this is a perfect example of the fact that the large-cap stocks are retreating and quite weak, and made up the lion's share of the market's value, and only a few smaller sectors are performing well.

The market's technical condition is deteriorating significantly. As the market rallied off the March 17th lows, we should have seen an ever-increasing number of daily New Highs and a corresponding contraction in the number of daily New Lows. This would have shown that large numbers of stocks were participating in the rally and would have been testimony to a healthy market advance which requires broad participation.

However, what has actually occurred is that the increase in the number of daily New Highs has been relatively anemic and the daily number of New Lows have remained high and spike to even higher levels on any down days in the market. Last week's decline evidenced a sharp spike in the number of new lows giving testimony to the fact that a great deal of weakness lurks just below the surface of this market.

In summary, the market's behavior, technical condition and sentiment surveys from the March bottom through the recent top suggest that the Spring rally was simply a respite from an ongoing BEAR MARKET which began about one year ago in Summer 2007.

ASIA (ex-Japan) -

EMERGING MARKETS -

EURO -

JAPAN -

LATIN AMERICA (LatAm) -

USA -
(see Equity Style section for specifics)

Continued strength in the US Dollar and/or continued increases in global interest rates might see this model moving to a defensive position in the coming weeks.

GOLD Bullion - (GLD)

Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) remain on a BUY.

Real Estate - REIT's have recovered nicely. Our models now rank REIT's as a BUY. However, one must be mindful that the general market trend is quite risky at present.

If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491.