Wednesday, December 22, 2010

US equity markets continued their recent strength while Europe remains stymied as it sorts out the on-going debt crisis giving strength to the US dollar. US treasuries staged a small rally at the end of the week, and there was little news from China to move the markets.

For the week, the Dow Jones Industrial Average (DJIA) gained 82 points (+0.72%) ending the week at 11,491.91. The S&P 500 gained 4 points (+0.28%) to close Friday at 1243.91. For the year the DJIA is up 10.2% and the S&P 500 is up 11.6%.

Health Care, Consumer Discretionary, and Materials were the best performing broad sectors last week while Financials, Real Estate, and Technology brought up the rear. Year-to-date the top three broad economic sectors are Consumer Discretionary, Industrials, and Materials while Utilities, Health Care, and Financials remain at the bottom. Real Estate has fallen out of the top three broad sectors for the year for the first time in many months (it remains 4th on the list) so I will continue to watch this sector closely.

The MSCI (EAFE) World Index lost 0.1% for the week and is now up 2.6% for the year. Chile, Sweden, and Taiwan were the top performing countries I follow this week while Indonesia, Turkey, and Vietnam were the bottom three. For the year, Thailand, Chile, and Indonesia are the top performing countries and Spain, Italy, and France are the worst. The European debt crisis emerged as the number one financial story this week and I will discuss in greater detail below.

The Euro fell 0.5 cents against the US dollar last week to close Friday at $1.3181 from the previous week's close of $1.3229. The US dollar has posted gains against the Euro for the past five of six weeks as investors shun the Euro over continuing European debt worries and improving US bond yields.

The 10-year treasury closed the week at 3.3376% up from the previous week's close of 3.229%. The bond market's volatility and yields have been rising as investors are eyeing renewed strength and optimism in equities. The long-end of the yield curve (bonds with maturities 20 years and greater) has been hardest hit. All bonds rallied a bit on Thursday and Friday as investors started taking advantage of the recent price declines and news that there was an outside chance that the Build America Bond program could be renewed in the next Congress. Trading in municipal bonds is expected to be light as the year comes to a close.

Overall commodities posted gains for the week. Gold fell slightly closing at $1376.00 Friday from the previous week's close of $1384.90. Oil increased to $88.07 per barrel from the previous week's close of $87.79. Gold continues to be a hedge against uncertainty in global markets and oil's value reflects expectations of coming global growth and demand.

THE COUSIN EDDIE OF FINANCIAL MARKETS

For those of you who do not watch the Vacation movies regularly like I do, you may not be familiar with Cousin Eddie. Cousin Eddie is the uninvited family member who arrives at Chevy Chase's house at the worst possible times and overstays his welcome. The European debt crisis is the Cousin Eddie of global financial markets.

At the heart of this crisis is the realization that this problem is enormous and will not go away without major structural changes. Greek protesters have taken to the streets again, the Irish government fell after accepting the European Union (EU) and International Monetary Fund (IMF) bailout, and Spain is now under increasing pressure from the bond market as fears grow that its banking system cannot survive without massive support (and lots of Spain's debt is also owned by Germany, France and others). In response, the EU's finance ministers just completed the last summit for 2010 and announced an agreement to replace the current emergency rescue fund with a permanent crisis-finance program. The proposals call for greater enforcement powers for the EU and European Central Bank (ECB) to dictate actions to be taken by the bailed-out country and discipline them for not adhering to those guidelines. In other words, the EU is coming to grips with the fatal flaw of having a common currency without a means of controlling the spending and borrowing activities of its member nations. It is the equivalent of giving your Cousin Eddie a credit card with no limit and always being on the hook for paying his bills-eventually you will grow tired of using your own hard earned money to pay for his spendthrift ways. To help control Cousin Eddie you put limits on his spending and require that he start making payments to you.

Brian Carney and Anne Jolis wrote an excellent column titled, "Toward a United States of Europe" in the Wall Street Journal's weekend edition (December 18, 2010) discussing the challenges facing the EU. The article highlights comments from French Finance Minister, Christine Lagarde, who says that for the EU to work, its countries are going to need greater coordination between member countries if the EU is to survive. The individual members of the EU are going to have to answer more and more to the EU and ECB. Also at stake is nothing less than the sovereignty of individual nations. Germany is at the top of the list of countries who do not want to bailout weaker, more undisciplined, member nations. However, an argument can be made that the German's have little choice because failure of the EU would do enormous economic harm to Germany and global financial markets. In the end, the EU could end up like the United States with a strong central/federal government and satellite countries/states. The question remains if independent nations are prepared to give up their sovereignty for the good of the European Union.

The resolution of the European debt crisis is of great importance to all of us. You may be asking why this matter should be a major concern of the United States. It is not our debt, we don't have the Euro as our currency, but the fact is global financial markets are extremely intertwined. This interrelationship of the banks internationally is similar to concept of the Federal Reserve's decision to bailout AIG at the height of the US economic crisis. AIG was perceived, because of its relationship with nearly every major bank and investment firm in the US, as too important to fail. Europe and the United States are intertwined and so what happens in Europe will impact on us here.

Looking Ahead

The momentum behind equities, especially US stocks, has continued to build. With Congress passing a continuation of the Bush-era tax rates, the defeat of the $1.2 trillion omnibus spending package in the Senate, and the release last week of a positive report on the leading economic indicators, there is some basis for this momentum. It is hard to tell how much movement will occur in US stock markets near-term because I believe much of that news is already factored in.

I am not, however, an unconstrained bull. I do believe that we are closing out 2010 on a relatively positive note and I am glad for that. I also believe that continued exposure to stocks is warranted at this time, but I also realize that there continue to be headwinds on the economy that must be watched closely. At the top of my list of concerns are the persistently poor housing market and an unemployment rate that is approaching 10%. So while I continue to invest in stocks, I am looking over my shoulder for any signs of market deterioration. Again, the benefit of following a technical discipline from data provided by Dorsey Wright & Associates is that it helps to strip away the emotion and clutter surrounding the headlines each day.

There were no changes in my overall technical indicators last week. The New York Stock Exchange Bullish Percent (NYSEBP) increased slightly from 77.55 to 77.82. A reading over 70% is an indication that stocks are strongly favored but risk for a correction is present. Stocks are still favored over bonds. Mid and small-cap stocks are preferred over large cap, and growth is favored over value. I prefer emerging markets and recommend staying away from developed Europe. Emerging markets have been showing weakness recently, but it still tops my list of key indicators on a relative strength basis so I will continue recommend these investments in portfolios. I remain committed to maintaining an investment in commodities as a hedge against rising prices.

Bonds improved slightly this week and I maintain that bonds should remain within portfolios at this time. Many bond sectors have performed well this year and I remain committed to bonds in allocations appropriate for varying risk tolerances.

I hope that during this holiday season each of you has the opportunity to gather with your families and friends and share the joys that come from such camaraderie. In the final analysis what we ultimately have is each other and the love and kindness shared together. I again ask that we remember the brave men and women who are not able to be with their families as they defend our shores from those who do not share our values.

Happy Holidays!

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Friday, December 17, 2010

US equity markets continued to show strength in a week that was marked by high drama on Capital Hill and China announced another 0.50% increase in their banking reserve requirements in the face of continued inflation worries. European debt problems fell back into the shadows and commodities took a breather, while Euro fell against the US dollar and US treasuries continued their sell-off.

For the week, the Dow Jones Industrial Average (DJIA) gained 218 points (+1.95%) ending the week at 11,410.32. The S&P 500 gained 16 points (+1.28%) to close Friday at 1240.4. For the year the DJIA is up 9.4% and the S&P 500 is up 11.2%.

Financials, Telecom, and Technology were the best performing broad sectors last week while Real Estate, Utilities, and Energy brought up the rear. Year-to-date the top three broad economic sectors are Consumer Discretionary, Industrials, and Real Estate while Utilities, Health Care, and Financials remain at the bottom.

The MSCI (EAFE) World Index lost 0.9% marking the 5th consecutive week this broad international index has fallen under the heavy burden of debt concerns in Europe. Also hit hard were some of the darlings in international investing this year and past: Turkey, China, and Brazil. Israel, Ireland, and Austria were the best performers last week. China remains the focus of the investment media and most traders. More on that below.

The Euro fell 1.8 cents against the US dollar last week to close Friday at $1.3229 from the previous week's close of $1.3414 and is virtually unchanged for the month. Much of the US dollar's strength continues to come even as the Federal Reserve remains committed to its bond purchase program (QE2). The reasons for the rise of the US dollar in the face of QE2 have several components. First, international investors are buying US dollars to buy treasuries as rising yields make them more attractive. A second, and perhaps dominant reason, is safety. As investors fear what is happening on a global stage-particularly in the Euro Zone, the US dollar continues to be the place park cash. The strength of the US political system trumps other fears like inflation.

Gold gained and oil pulled back last week as commodities in general fell slightly on worries that as the Chinese central bank continues to restrain growth, global demand for commodities will fall as well. The general trend of commodities has certainly been positive and I believe in a growing economic scenario, this trend will continue.

Bond investors continue to see portfolio values fall as interest rates rise. Rates on the benchmark 10-year treasury closed Friday at 3.229% from the previous Friday's close of 3.0167%. The last time rates were at this level was late June of 2010. Municipal bonds continued their pullback primarily on concerns that Congress may not extend the Build America Bond (BAB) Program. BAB's are state and local government issued bonds whose interest payments are partially subsidized by the federal government. The program has been very popular with states that have the greatest debt problems including California, Illinois, New Jersey and New York. The program has come under scrutiny by Republicans over concerns that the program allows states to continue issuing debt for spending they cannot afford and the federal government is incurring additional financial obligations.

CHINA CONCERNS

China released data over the weekend showing inflation for November jumped to 5.1% year-over-year (YOY). This follows October's YOY increase of 4.4% and these increases clearly have the Chinese central government concerned. Over the weekend, China announced that it would raise yet again the bank reserve requirement from 18% to 18.5%. This move is designed to withdraw money from the Chinese economy by reducing the amount of money lent by Chinese banks. The greatest worries about the Chinese economy are focused on real estate development. Depending on who you read, some analysts believe the Chinese have massively over-built and everything from shopping malls to apartment buildings remain empty and unsold. China is not as transparent as Western countries but these concerns about the underpinnings of the Chinese economy must be watched closely.

Because nothing is all one way or the other, November export data for China showed a 34.9% YOY increase in exports and can be interpreted as a clear positive for US and European demand which bodes well for bulls. This is a great example of the general tug-of-war that currently exists between pro-growth bulls and cautious outlook of the bears.

The pause in commodity prices this past week can also be attributed to fears of a slowdown within China. If demand, or expectation of demand, goes up; commodity prices will likely follow.

Looking Ahead

At a recent conference I attended, Bob Doll (Vice Chairman of BlackRock) said that there are times when the economy and stock market do not necessarily move in tandem. Times like this are a good example of this view. The jobs report released on December 3rd showed unemployment jumping up to 9.8% and many pundits say 10% is not far behind. Home prices remain stuck or decreasing. I read a report in Bloomberg which said that nearly 24% of all homes in the US are currently worth less than their mortgages. Yet the stock market is showing renewed strength.

The cross currents in the global economy are impacting the markets with the equity markets winning out recently. The two major issues facing investors are the fears related to excessive borrowing by the developed economies and the sustainability of the economic recovery. The bears fear mounting debt will stifle economic growth, while the bulls see the world economy rebounding and growth rates returning to more normal levels. It appears that the headline of the day drives market returns.

The stock market is also watching the debates in Washington over the tax rates and other fiscal policy issues in Congress. Do not underestimate the importance the markets are placing on a satisfactory resolution of the compromise reached by the President and the Republicans.

When there is so much uncertainty about how the economy is going, the value of the technical research I use with Dorsey Wright and Associates is even more important. Looking at the current market technicals, the New York Stock Exchange Bullish Percent (NYSEBP) closed last Friday and a very strong 77.55. A score over 70 indicates an overbought status of US stocks and that risk levels are high, but does not indicate when a major sell-off may occur. Stocks are favored over bonds. Mid and small-cap stocks are preferred over large cap, and growth is favored over value. Another change occurred in the Dorsey Wright Dynamic Asset Level Indicators (DALI) where Real Estate fell out as one of the favored sectors. This adjustment is not a reason to sell real estate investments; rather it is more a move to place these investments under greater scrutiny. International stocks continue to be favored. I prefer emerging markets and recommend staying away from developed Europe. Equal weighted indexes are preferred over capitalization weighted indexes.

I remain committed to maintaining an investment within commodities as a hedge against rising prices. If manufacturing remains strong in China, commodity prices are likely to continue rising.

US bonds continue to pull back as interest rates rise. I will repeat my view that bonds should remain within portfolios at this time and December can be a difficult time as inventories can get skewed. Bonds have pulled back from an overbought status to an oversold status, but for the most part have not violated support lines and should therefore be retained in portfolios. Like real estate, this pullback warrants close scrutiny.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

Emerging market investments involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation. The main risks of international investing are currency fluctuations, differences in accounting methods, foreign taxation, economic, political or financial instability, and lack of timely or reliable information or unfavorable political or legal developments.

The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Thursday, December 2, 2010

US markets were relatively calm compared to International markets which were hit hard by North Korean aggression on South Korea and the on-going Irish bailout. The Euro continued to pull back against the US dollar and US treasuries rallied on the uncertainty abroad.

For the week, the Dow Jones Industrial Average (DJIA) lost 112 points (-1.0%) ending the week at 11,092.00. The S&P 500 lost 10 points (-0.9%) to close Friday at 1189.4. For the year the DJIA is up 6.4% and the S&P 500 is up 6.7%.

Real Estate, Consumer Discretionary, and Technology were the best performing broad sectors last week while Financials, Energy, and Health Care brought up the rear. Year-to-date the top three broad economic sectors are Consumer Discretionary, Real Estate, and Industrials while Health Care, Utilities, and Financials remain at the bottom.

The MSCI (EAFE) World Index lost 3.5% on fears that Portugal and Spain were not far behind Ireland. The cost of the Irish bailout increased last week from an estimated €50 billion ($68 billion) to €67.5 billion ($89 billion). The worst performing countries last week were Spain, Ireland, Turkey, and Italy. All but Turkey are at the center of the European debt crisis. While emerging markets were also hit, developed international markets were hit harder. Other than Turkey, the other non-European country hit hardest last week was, not surprisingly, South Korea. China fell again, but not as severely as those already mentioned. Peru, Canada, and Chile were the strongest countries of those I followed last week.

The Euro fell 4.5 cents (-3.27%) against the US dollar last week to close Friday at $1.3238 from the previous week's close of $1.3686. The month long rise in the US dollar reflects investor fears of debt and war worries. These same worries sent US treasuries higher as the 10-year yield fell to 2.8699% from last week's close of 2.8750%. Gold rallied $10.60 (0.78%) to close the week at $1364.00. Investors are seeking security right now in both the equity, bond, and precious metal markets.

Oil prices rallied $2.16 per barrel closing at $83.76. Oil analysts are somewhat bearish on their outlook, however, as the rising dollar slows purchases (everyone buying oil in other currencies must pay more) and concerns that Chinese rate tightening will curtail that country's demand going forward.

THE WORLD IS A BIT MESSY

The news that North Korea launched an hour-long artillery barrage against a small island town in disputed waters just of the coast of both countries reminded investors that there are other worries beyond the impact of QE2 on world economies. Yet, when the dust settled, US markets were again relatively neutral in price movements. I believe this is attributable to a series of regularly (albeit minimally) improving US economic numbers on jobs, manufacturing, and retail sales.

Europe remains embroiled in the fallout over debt levels of the weaker European Union (EU) members and ultimately the viability of the Euro currency for some of these countries. European leaders have been working furiously to complete the Irish bailout agreement. As of early Monday morning (November 29th), the EU finance ministers agreed on a the terms of the bailout and a compromise regarding a demand by German Chancellor, Angela Merkel, that bond holders would share the cost of potential sovereign debt restructuring beginning in 2013 with tax payers. The final agreement has been modified to state that bond investors will be asked on a "case-by-case" basis to accept losses on their bond investments. Concerns by some of the weaker countries like Ireland and Italy were that if Merkel's demand for mandatory private-sector write-downs were included in the new European-wide bailout fund, then borrowing costs would escalate and greatly weaken already fragile government balance sheets. To sound, yet again, like a broken record, all that has been accomplished in Ireland (as it was in Greece) is to kick the debt can down the road for a few more years in hopes that an improving economy and government austerity programs will allow these governments to get onto sound economic footing. If this does not happen, I believe it will be hard for the Euro to remain the common currency for all current members.

Expectations are that China will continue to take steps to hold down inflation. The central bank of China has already announced that reserve requirements will increase from 17.5% to 18%, but beyond that, there remains uncertainty on exactly what form further tightening will take. Fed Chairman Bernanke has led US calls for China to let the yuan trade freely (as opposed to being artificially pegged to the US dollar) which would have an immediate impact of raising the cost of Chinese exports and an immediate slowing of the Chinese economy. While this debate goes on, investors believe some slowing will come. The falling price of commodities and sell-offs in Asian markets indicate that investors believe the Chinese economy will slow in the months ahead.

Finally, the North Korean problem continues to threaten peace on the Korean peninsula. Senior Chinese diplomatic officials visited Seoul over the weekend seeking South Korea's support of renewed talks with North Korea, Japan, Russia, China, the US and both Koreas. This suggestion was not well received as the South Koreans (as well as the US) believe these talks reward North Korea's behavior. The US and South Korea began joint naval exercises in the region to signal the US's support for Korea. China, as North Korea's benefactor, holds the key to getting North Korea to step back from its provocations with the South. You may be wondering why North Korea (with China's tacit support) would take such dramatic action against South Korea, and the answer is actually quite simple-resources. The history of the US and its allies has been to negotiate with North Korea and provide them all sorts of economic benefits. These benefits reduce the amount of support the Chinese have to provide its ally. It remains to be seen if this tactic will work one more time.

Looking Ahead

As a result of the turmoil abroad, the US dollar continues to strengthen. As I have noted previously, this near-term rally would help US equities across the board. The fairly sizable out-performance of US equities over international stocks and bonds last week reflects this dynamic. I continue to believe that the US dollar/Euro relationship is a key indicator towards global growth and strong equity performance.

The New York Stock Exchange Bullish Percent (NYSEBP) increased slightly last week to 73.93 from the previous close of 73.71. A score over 70 indicates an overbought status of US stocks and that risk levels are high, but does not indicate when a major sell-off may occur.

The most notable change in the Dorsey Wright Dynamic Asset Level Indicators (DALI) was mid-capitalization stocks have become favored replacing small cap stocks as the preferred capitalization weighting. Small cap stocks had been favored since April 2009, so this is a relatively important signal. At the broadest level, US and International stocks continue to favored. One or two sub-par weeks in the markets are not enough action to force international stocks out of its favored status. Commodities remain strong but have also come under some stress over the China inflation issue. US bonds strengthened last week. Longer-term treasuries and municipals rallied after falling the past few weeks while international debt pulled back in concert with international equities.

Mid-capitalization and small-cap stocks continue to be favored over large caps. Equal-weighted indexes (which will include more mid cap stocks) remain favored over capitalization-weighted indexes. Emerging markets remain favored over developed markets.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Monday, November 22, 2010

US and global equity markets lurched to and fro this past week to close essentially flat.Ireland appears to be warming to a European sponsored relief package, China announced an increase in the bank reserve requirement, and Fed Chairman Bernanke aggressively defended his second round of quantitative easing (QE2) policy.

For the week, the Dow Jones Industrial Average (DJIA) gained 11 points (+0.10%)ending the week at 11,203.55. The S&P 500 gained just under 1 point (+0.04%) to close Friday at 1199.73. For the year the DJIA is up 7.4% and the S&P 500 is up 7.6%.

Industrials, Energy, and Consumer Discretionary were the best performing broad sectors last week while Real Estate, Health Care, and Financials brought up the rear. Year-to-date the top three broad economic sectors are Consumer Discretionary, Real Estate, and Industrials while Utilities, Health Care, and Financials remain at the bottom.

The MSCI (EAFE) World Index gained 0.6% on news that Ireland was moving towards accepting aid from the European Union (EU). Latest reports indicate that aid could be in the €50 billion ($68 billion) range. Concerns are mounting that Irish banks are facing ever-growing losses from real estate related debt. China announced, not unexpectedly, on Friday that it was increasing the bank reserve requirement from 17.5% to 18% in an effort to pull money out of their economy to stem rising inflation. China and India were the worst performing countries last week with Ireland, Israel, and Austria the best. For the year, Thailand, Peru, and Indonesia remain the strongest performers while Spain, Ireland, and Italy continue to be the weakest.

The Euro fell slightly last week to $1.3686 from the previous Friday's close of $1.3692. The US dollar's recent strength may come as a surprise to many in light of the Fed's QE2 policy, but it reflects concerns over the longer-term issues surrounding European debt problems. I will discuss this issue in greater detail below.

Oil prices fell $0.40 per barrel closing at $81.60. Gold continued its recent weakness falling another $16 per ounce (-1.2%) to close at $1353.40. Like equities, commodities in general ended the week flat.

US treasury yields fell (bond prices increased) Friday after Mr. Bernanke's remarks defending QE2, but in general bond prices continue to be weak. On Friday the 10-year yields closed at 2.8750%, up from the previous week's close of 2.7889%. Many pundits are scratching their heads over the recent surge in interest rates following the Fed's announcement on November 3rd of additional bond purchases in the open market. But the fact is, rates are rising. Especially hard hit have been municipal bonds and emerging market debt. A number of bond managers I follow have recently commented on the deteriorating muni bond market and their consensus is that the problems are supply-driven and not credit quality related. State and local governments are rushing supply into the market to take advantage of historically low rates, to issue bonds under the Build America Bond program which ends at the end of the year, and because the two-year moratorium permitting AMT tax-free private activity bonds is also expiring at year's end. This supply imbalance is forcing issuers to offer higher interest to attract sufficient buyers. I remain skeptical of this view and believe that there are a lot of states that have serious debt issues including Illinois and California. Emerging market bonds have been hurt by a rising US dollar.

THE US DOLLAR, EURO, AND IMPACT ON INVESTORS

The recent strength of the US dollar is confounding economists. Like all other goods currencies are in essence a good to be bought and sold on the open market), when demand for a particular good increases, so does its price. Investors around the world have been buying US dollars at a greater rate than the Euro and most other currencies.From a technical standpoint, my indicators are suggesting that this relationship can continue for the short-term. However, the longer-term outlook is not as strong.Economists are correct in their concern for the strength of the dollar as the Fed continues to print money to buy our debt. Mr. Bernanke made it very clear on Friday that his overall objective is to help a weak US economy recover and to spur employment. He did acknowledge that a weaker US dollar could result, but he places the blame for much of the US dollar's weakness on countries like China that are manipulating their currencies to keep them artificially low.

While the Fed's monetary policy may contribute to a weaker US dollar, I continue to see problems in Europe as the main determinant in the strength of the US dollar. Ireland will be forced to take aid to stem its banking crisis. I mentioned that the aid package could total $68 billion; however, European financial leaders are uncertain about the final amount. Fallout from Ireland has forced other weak EU countries to pay more for their debt. Spain had a successful bond offering this past week, but at rates higher than they would have preferred. Greece is still a mess, Italy is a mess, and Portugal is a mess. Higher rates put more and more pressure on the solvency of these governments, and the long-term outcome could be insolvency and restructuring. Bankruptcy for short. The situation in Europe reminds me of the tale of the little Dutch boy who averts a crisis by sticking his finger in the dyke to stem the flow of water while awaiting help. In the tale help comes just in time to prevent a catastrophe, the question now is whether or not enough help can arrive to stem the leaks currently flowing from the European debt dyke. Should the worse-case scenario play out, it will be a huge global economic mess. While I do not see this happening in the next couple of years, and it may not happen at all, it must be watched along with the Euro/US dollar relationship.

To the investor, a rising US dollar favorably impacts on US stocks (small and mid caps outperforming large caps), US bonds, and growth stocks. A falling dollar favors non-US stocks, commodities, gold, international bonds, and value stocks.

The technical indicators I follow help provide insight as to what is happening and I will certainly keep all of you apprised of this important issue.

Looking Ahead

A news story that is certain to draw attention in the coming weeks follows an announcement by Federal investigators late Friday that they are nearing the completion of a 3-year insider-trading investigation that, according to an article by the Wall Street Journal, "could eclipse the impact on the financial industry of any previous such investigation." The article states that the investigation centers on more than 30 investment banks, hedge-funds, and expert-network firms. Expert-network firms specialize in providing institutional clients the most up-to-date information about a specific industry and potential deals within that industry. The most well-known name mentioned in the Wall Street Journal article was Goldman Sachs who is under investigation about Abbott Laboratories' take over of Advanced Medical Devices in January 2009. It is doubtful that the market will react broadly on Monday to this news because the investigation focuses primarily on mergers and takeovers from 2007 to 2009; however, individual companies may be hurt and there could be erosion of investor confidence which is already weak. This will be a story I will be following with great interest.

It is too early to say that the recent correction in equity markets is anything more than the normal ebb and flow of the markets. Nearly all of my technical indicators had most stocks, bonds, and commodities in an overbought status. As of the market's close on Friday, many indicators have returned to more normal levels.

The New York Stock Exchange Bullish Percent (NYSEBP) fell last week to 73.71 down from the previous week's close of 75.58. I continue to watch this critical indicator closely for signs of a breakdown. A score over 70 indicates an overbought status of US stocks and that risk levels are high, but does not indicate when a major sell-off may occur. US and International stocks are favored. Commodities remain strong. Bonds appear to be under continued pressure going into next week, but not to the point of reducing current bond allocations at this time. Longer-term municipals and international debt are showing the greatest weakness right now.

Small and mid-capitalization stocks continue to be favored over large caps. Equal-weighted indexes (which will include more mid cap stocks) remain favored over capitalization-weighted indexes. Emerging markets remain favored over developed. China must be watched carefully as investors shy away while the Chinese government takes steps to slow the overall economy in an effort to curb inflation.

This week is a shortened trading week. The markets are closed on Thursday in celebration of Thanksgiving and will close at 1 PM on Friday. As we gather with family and friends this Thanksgiving, I want to extend my sincere hope that you are able to share this holiday with those you love and hold close. I ask that we all take a moment and remember those great soldiers, sailors, marines, and airmen that are unable to be home with their families as they defend each and every one of us.

Happy Thanksgiving!

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S.stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Tuesday, November 16, 2010

US and global equity markets pulled back this past week as investors digested the effects of QEII, the mid-term elections, the G-20 Summit in Seoul, worries of renewed debt problems in the Euro Zone, and a flash of inflation from China.

For the week, the Dow Jones Industrial Average (DJIA) lost 251 points (-2.20%) ending the week at 11,192.58. The S&P 500 lost 57 points (-2.17%) to close Friday at 1199.21. For the year the DJIA is up 7.3% and the S&P 500 is up 7.5%.

Energy, Consumer Staples, and Consumer Discretionary were the best performing broad sectors last week while Real Estate, Health Care, and Industrials brought up the rear. Year-to-date among the top three broad economic sectors Consumer Discretionary replaced Real Estate as the top performing sector while Real Estate fell to number two and Industrials remained at number three. Health Care, Utilities and Financials remain at the bottom.

The MSCI (EAFE) World Index fell in concert with the US markets losing 2.4% on negative news regarding debt concerns in Ireland and inflation worries in China. Emerging markets fell sharply last week with India, Australia, Brazil and Turkey leading the drop. Japan, Peru, and Chile were the best performers. For the year the MSCI (World) Index is up 3.2%. As 2010 begins to wind down, the top performing countries that I follow have been Thailand, Peru, and Indonesia while Ireland, Spain, and Italy have been the weakest. The bottom three countries should come as no surprise given the underlying fears of a national debt implosion in the Euro Zone.

The Euro fell last week to $1.3692 from the previous week’s close of $1.4032. The Euro has been rising for some time against the US dollar as the Federal Reserve has directly or indirectly maintained a weak dollar policy via bond purchases in the open market. However, this policy was not enough to keep Euro investors from buying US dollars as Ireland’s current financial problem is seen as reaching a critical stage. The European Union (EU) and the International Monetary Fund (IMF) have created a very sizeable reserve for Ireland to draw on if needed; but so far, the Irish have been adamant about not taking the funds to maintain their sovereignty (there are lots of strings attached to any bailout). This story will have important ramifications in the days and weeks ahead.

Oil prices fell $4.85 per barrel closing at $82.00 for a weekly loss of 5.58%. Gold also fell shedding $25.70 per ounce (-1.84%) to close at $1369.40. Commodities were hit especially hard the end of the week as China announced that inflation in that country had reached 4.4%. Investors expect that the Chinese will adopt policies to slow economic growth impacting negatively on the overall demand of natural resources imported by the Chinese. A rising US dollar will also negatively affect commodity prices.

US treasury yields have risen to two month highs as bond owners have been selling bonds following the Fed’s announcement that the Fed would purchase up to $600 billion in bonds. At the very least it appears that profit taking is behind the selloff. The 10-year rate closed Friday at 2.7889% up from 2.5412%. This 9.75% increase in yield is the largest single week move so far in 2010. I believe it is too early to tell if this is little more than profit taking or a shift by investors away from longer-term bonds on fears of impending inflation.

G-20 SUMMIT MEETING IN SEOUL MEETS WITH LITTLE SUCCESS

The purpose of the G-20 is to have the world’s largest economies meet and coordinate global financial policy. When the G-20 met in early 2009 during the midst of the credit crisis, the countries agreed that massive monetary and fiscal stimulus was needed to keep the world from sinking into a depression. All 20 countries acted accordingly and the crisis was blunted. This past week, with the crisis subdued, countries were more focused on their individual interests and the United States stood alone calling for continued massive stimulus to spur economic growth.

Leading up to this meeting, it was evident by the mounting global criticism of Secretary Geithner’s call to curb trade imbalances between exporters and importers that the US position would not prevail in Seoul—and it did not. The Wall Street Journal opined this past weekend that they could never remember an international meeting where a US President and Treasury Secretary had been so thoroughly rebuffed. The problem is quite simple, the rest of the world sees the US as being hypocritical as the President endorses the Fed’s easing policies (QEII) which puts downward pressure on the US dollar at the same time the US is criticizing China on their own currency manipulation. Export growth by the US would come at the expense of other exporting countries and those countries (Germany, China, and Brazil to name a few) are not willing to cut their exports on behalf of the US. Without dominant US leadership, the meeting resulted in little meaningful accomplishment.

THE EUROPEAN DEBT CRISIS AND CHINESE INFLATION

I have already touched on the debt crisis growing in Ireland. The issue centers around growing doubt that the Irish can meet their bond obligations and their commitment to austerity measures. But this is only part of the story. The real fear is that if Ireland falls, then Portugal falls, and then Spain, and so on. Sooner or later there will not be enough Euros to bailout every country. The European leadership understands this, so they are aggressively dealing with the concerns. The question remains—will the EU be successful.

The Chinese announced inflation jumped to 4.4% over the same period a year ago. Investors fear that the Chinese government will act quickly to try to curb economic activity by raising interest rates, cash reserve requirements by banks, or both. These concerns spilled out over most of Asia as many countries had very poor market performance at the end of the week. Commodity prices fell sharply on fears that the Chinese will curb imports of many raw materials. As I write this Update (Saturday night), there has been no announcement by the Chinese government of any policy moves. There may be some further action by the Chinese government in the coming weeks, but the market’s reaction may prove to be based upon speculation and profit taking.

Looking Ahead

At the core of all the economic news this past week, as it has been in other weeks, is the story of an extremely week US economic recovery. Unemployment is 9.6%, GDP growth is around 2%, and the potential for political gridlock in Congress diminishes hopes of any certain turnaround. Inflation looms in the back of everyone’s minds as the Federal Reserve continues printing money at historic rates. My vote right now is for the President and Congress to work together to get this country back to work.

The 2+% drop in markets in the US and abroad may just be profit taking. It may be a pause after the market surge in September and October. One week of activity is not a trend and must simply be watched closely. The New York Stock Exchange Bullish Percent (NYSEBP) actually rose slightly to close at 75.58 for the week. Any level over 70 signals an increase in risk, not imminent market direction. Positions should be entered cautiously here.

US and International stocks are favored. Commodities, hit hard last week, remain strong. Bonds appear to be under a little bit of pressure going into next week. The longer maturities are coming under the most pressure while the municipal bond market has been quietly selling off over the past 30 days or so. The take away here is that security and bond selection is critical. Buy the strongest technical stocks and bonds, and pay attention to them. I believe bonds are a solid holding for many at this time, but I am cautious about new investment in bonds with maturities greater than 10 years. I am focusing on short to intermediate-term bonds. Don’t forget about Treasury Inflation Protection notes (TIPS for short) if inflation begins to emerge.

Small and mid-capitalization stocks continue to be favored over large caps. Equal-weighted indexes (which will include more mid cap stocks) remain favored over capitalization-weighted indexes. Emerging markets remain favored over developed.

Sincerely,

Paul L. Merritt, MBA, AIF®, CRPC® Principal NTrust Wealth Management

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable; however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2,5,10, and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Tuesday, November 9, 2010

US equity markets reached their highest levels in two years following an announcement by the Federal Reserve that it will purchase up to $600 billion in long-term US treasuries through the end of June 2011 in an effort to jump start the economy and inflation causing a surge in commodity prices. Additionally, mid-term elections promise to slow down the high-tax, big government agenda pursued by the last congress; and a higher than expected private sector jobs report buoyed investors.

For the week, the Dow Jones Industrial Average (DJIA) gained 326 points (+2.93%)closing the week at 11,444.08. The S&P 500 added 43 points (+3.60%) to close Friday at 1225.85. For the year the DJIA is now up 9.7% and the S&P 500 is up 9.9% and are levels not seen since September 2008.

Financials, Energy, and Real Estate were the best performing broad sectors last week while Health Care, Consumer Staples, and Utilities brought up the rear. Year-to-date the top three broad economic sectors continue to be Real Estate, Consumer Discretionary, and Industrials while Health Care, Utilities, and Energy have lagged. The strength of the financial sector can be attributed to reports that the Fed may allow healthy banks to resume paying dividends.

The MSCI (EAFE) World Index kept pace with US markets gaining 3.41% for the week. Emerging markets outpaced developed markets as investors continue to take on more risk and as the US dollar continues to weaken. For the year the MSCI (World) is firmly positive up 5.7%. For the week, the top performing markets that I follow were Hong Kong, China, and Australia while Spain, Italy, and Ireland were the weakest. For the year, Thailand, Peru, and Turkey have been the best performers while Spain, Italy, and Ireland have been the worst. The weak European countries cannot shake concerns about their ongoing debt problems.

The Euro continued to gain against the US dollar as the Fed signaled that it would hold interest rates down by purchasing long-term US treasuries. For the week, the Euro closed at $1.4032. The general weakening of the US dollar is having significant ramifications on commodity markets.

Oil prices jumped $5.42 per barrel closing at $86.85 for a weekly gain of 6.66%. Gold closed at $1397.70 gaining 2.96% for the week. The commodity story is not a uniform one. Sugar, cotton, and corn are all subject to the variances of supply and demand as weather patterns influence production and supply; while gold and other precious metals certainly reflect general uncertainty about the US dollar. Oil is certainly influenced by the value of the dollar, but also reflects supply figures and overall expectations of global growth.

With all the news from the Fed about its bond purchase program, US treasuries have remained relatively stable with the 10-year rate closing Friday at 2.5412%. This is only slightly below its close two weeks ago at 2.5624%. I think it is safe to say that the markets had already priced the Fed's announcement into yields.

RAMIFICATIONS OF THE FED'S ANNOUNCEMENT TO BUY BONDS

I have pointed out in previous Weekly Updates that the Fed's program to buy bonds (also known as QE2 for Quantitative Easing Round 2) would boost all asset classes. Stocks because many of the dollars printed by the Fed will find their way into the stock market, bonds because interest rates will be held down, and commodities would gain because of a weak dollar. This has happened and while many investors are certainly happy to see markets and valuations rise, concerns about the direction of US monetary policy is being voiced by leaders from Europe, China, and other parts of Asia. In general, foreign leaders are worried about how the weakening US dollar will negatively impact their exports abroad and create asset bubbles in their own economies. I have also commented about fears of currency wars erupting between countries and there continue to be signs of this possibility. Secretary Geithner is traveling abroad in advance of the next G20 meeting November 11-12 in Seoul and is finding pushback from preliminary meetings with finance officials. Domestically, concerns about the Fed's ability to stoke the economy without losing control of inflation remain as well.

MID-TERM ELECTIONS AND OTHER NEWS

The generational gains by Republicans in the House of Representatives and among state legislatures around the country signals change is coming. I will leave the broad ramifications of what form this change will take to the many, many pundits who comment on such things. What I will say is that there will certainly be a degree of gridlock in Congress and expect the next two years to be a lead up to the 2012 presidential campaign. What I believe we all want is for our government to focus on a healthy business climate and job creation. While the jobs report on Friday indicated an increase of 151,000 private sector jobs created in October, this pace of job creation is very anemic and will not make a dent on overall employment. An unemployment rate stuck at 9.6% will not contribute to the long-term economic recovery of the US. My hope is that Congress and the President will get serious about focusing on government policies that encourage growth, not inhibit it.

Looking Ahead

There was an incredible amount of news that impacted the markets last week. Most of it positive and the markets have reflected that by reaching two year highs.

The New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 75.07 and is well above the overbought line of 70. What I find interesting is that while the markets have reached two year highs, the NYSEBP is below the most recent high of 82.39 on September 17, 2009. This indicates that fewer stocks are participating in the market's gains and indicates a "divergence" from previous market highs.Remember, this statistic does not say that a correction is certain in the near-term, but it does indicate that the chances of a pull back have increased.

US and International stocks are favored. Commodities are very strong. Bonds are simply treading water (not a bad thing), and currencies are very uncertain at this point.

Small and mid-capitalization stocks continue to be favored over large caps. Equal-weighted indexes (which will include more mid cap stocks) remain favored over capitalization-weighted indexes. Emerging markets remain favored over developed markets and this relationship has strengthened recently.

The Dow Jones Corporate Bond Index and the Barclays Aggregate Bond Index both gained last week, albeit slightly. I believe bonds are a solid holding at this time, but I am cautious about new investment in bonds with maturities greater than 10 years. I am focusing on short to intermediate-term bonds. As cash sloshes around the world, emerging market bonds are becoming attractive.

Risk levels remain elevated. This does not mean that a correction is imminent, but adding positions should be done so incrementally and any pullback would be considered a buying opportunity.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Wednesday, October 27, 2010

Attention shifted abroad last week as the US and other countries of the G20 met in South Korea to discuss the global economy and attempt to head off potential currency wars. The US dollar reversed 6 weeks of losses against the Euro and other major currencies, and US corporations continue to report good earnings as markets ended the week with modest gains.

For the week, the Dow Jones Industrial Average (DJIA) gained 70 points (+0.63%) remaining firmly above 11,000 closing the week at 11,132.56. The S&P 500 added 7 points (+0.59%) to close Friday at 1183.08. For the year the DJIA is now up 6.8% and the S&P 500 is up 6.1%.

Real Estate, Financials, and Industrials were the best performing broad sectors last week while Materials, Energy, and Utilities brought up the rear. Year-to-date the top three broad economic sectors continue to be Real Estate, Consumer Discretionary, and Industrials while Financials, Health Care, and Utilities have lagged.

The MSCI (EAFE) World Index posted its first losing week in nine falling 0.46%. A strengthening US dollar and international economic policy debates weighed on this broad international index. For the year the MSCI (EAFE) World index is up 2.72%. For the week, the top performing countries that I follow were Mexico, Italy, and Germany while Brazil, Peru, and Poland were the weakest. For the year, Thailand, Indonesia, and Turkey have been the best performers while Italy, France, and Spain have been the worst.

As noted, the Euro snapped its six week winning streak against the US dollar closing at $1.3933 compared to last week's close of $1.3977. A variety of factors contributed to this drop including policy discussions by the G20, rioting in France and ongoing strikes there, and the announcement by British Prime Minister Cameron that he was proposing deep, across the board budget cuts to get the UK federal budget balanced by 2015.

Gold pulled back $44.30 (-3.2%) an ounce closing at $1327.70. The same factors bearing on currencies are primarily responsible for this pull back. Oil gained $0.75 to close at $82.00 per barrel. Analysts attribute the continuing strike in France and a possible late season storm in the Gulf of Mexico as reasons for the slight increase in prices. France will tap strategic reserves of refined products to meet demand as France oil giant Total SA announced that striking workers was forcing closure of five refineries in the country.

US treasuries rebounded modestly as the yield on the 10-year note fell to 2.5624% from the previous Friday's close of 2.567%. The volatile long end of the bond market (10+ years in maturity) gained the most while international bonds of all types were the weakest performers. Bond investors will be watching the next Federal Reserve meeting closely on November 2nd - 3rd where it is expected Chairman Bernanke will announce the initial size of the Fed's bond purchase program (QE2). While Chairman Bernanke has said recently that he supports further quantitative easing, the size and scope of the purchases have been called into question by remarks of several regional Fed directors.

CHINA RAISES INTEREST RATES

China's announcement Tuesday that they were raising interest rates by 0.25% sent global markets tumbling. This move by the Chinese to curb potential domestic inflation worries investors that growth in China will slow thereby hurting all markets. The US dollar rallied on the news and most metal commodities fell. This announcement was significant because China does not raise rates often, and is likely to help strengthen the Yuan as investors are attracted to the higher yields. It also will factor in the negotiations between members of the G20who most believe the Chinese improperly hold their exchange rate down to benefit Chinese exporters. While this may signal a willingness of the Chinese government to become more engaged in the international community's concerns, it is most likely a very self-serving decision (but aren't all such decisions) by China to deal with internal inflation.

WHAT IS GOING ON IN SOUTH KOREA?

I have commented recently on the growing concern that some countries (the US is #1 on the list) are devaluing their currencies to boost the competitiveness of exports abroad. The fear is that more and more countries will attempt to do the same to protect their exporters. Currency wars inevitably hurt global markets and consumers. In an effort to reduce tensions, Treasury Secretary Geithner proposed an indirect way of dealing with currencies by trying to target a broader metric, current account balances. I am not going to go into detail at this point about what current accounts are or the pros and cons of this approach, but it does address the currency problem between the US and China in a less confrontational manner. The effectiveness of this approach remains uncertain as a number of exporting nations, including Germany and Japan, have made it clear they do not support this approach.

Looking Ahead

There are a lot of economic issues swirling around us today. The strength of the US and global economies, the potential for currency wars, the uncertainty surrounding what actions the Fed will take with QE2 and the effectiveness of those actions, and the US mid-term elections to name a few. Whew, that is quite a list.

With this uncertainty as our foundation, what I do know is that the New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 70.64 up slightly from last week. A reading above 70 indicates that the markets have become "overbought." While this statistic does not say that a correction is certain in the near-term, it does indicate that the chances of a pull back have increased.

International and US equities are preferred among the five major asset classes I follow. Commodities are third, bonds fourth, and currencies last.

All major international indexes are all positive right now with demand clearly in control.

The Dow Jones Corporate Bond Index and the Barclays Aggregate Bond Index both gained last week, albeit slightly. I believe bonds are a solid holding at this time, but I am cautious about new investment in bonds with maturities greater than 10 years. I am focusing on short to intermediate-term bonds.

Small and mid capitalization stocks remain favored over large cap, and equal-weighted indexes favored over capitalization-weighted indexes. Emerging markets remain favored on a relative strength basis, but developed markets have come back strongly in the past two months and are nearing parity.

Risk levels are elevated to a point not seen since early May and I therefore remain guarded in terms of taking new equity positions. By guarded I mean taking new positions incrementally and being very focused on buying only the strongest technically rated investments.

I will not be publishing an Update next week because of upcoming business travel. I will be attending a conference with my broker dealer, Commonwealth Financial Network®, in Phoenix most of the week. I will remain available should you need to speak with me. Please contact me directly on my cell phone or call my assistant, Lisa Berger, if you need any assistance.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.

Tuesday, October 19, 2010

Ben Bernanke and the Federal Reserve remained the focus of economic news this past week while interest rates on US treasuries moved up sharply. Concerns over the mortgage foreclosure process pushed banking stocks down sharply.

For the week, the Dow Jones Industrial Average (DJIA) gained 56 points (+0.51%) and the S&P 500 added 11 points (+0.95%) continuing recent gains. For the year the DJIA is now up 6.09% and the S&P 500 is up 5.48%.

Information Technology, Consumer Staples, and Energy were the best performing broad sectors last week while Financials, Health Care, and Utilities brought up the rear. For the year, Real Estate, Consumer Discretionary, and Industrials have been the three best sectors while Financials, Health Care, and Utilities have lagged.

The MSCI (EAFE) World Index posted a gain of 1.28% marking it highest weekly close in 2010 and outpacing US indexes yet again. For the year the MSCI (EAFE) is now up 3.19%. Israel, China, and Peru were the strongest countries I follow while India, Japan, and Taiwan lagged. On a broader basis, developed markets again led the way with China continuing to show strength. For the year, Thailand, Peru, and Indonesia have been the best performing countries while Spain, Italy, and France have been the worst.

The Euro continued to gain against the US dollar last week closing at $1.3977 up from the previous Friday's close of $1.3929. However, the momentum of the gains against the dollar slowed even in the face of Fed Chairman Bernanke's speech on Friday where he essentially reaffirmed a policy that will continue to weaken the US dollar albeit a little more slowly than the markets had been anticipating.

Gold continued its historic run gaining another $26.30 an ounce closing at $1372.00. As I have stated recently, these prices reflect the continuing uncertainty about the strength of paper currencies (read inflation) and an underlying lack of confidence in the global economy. Oil closed down $1.41 at $81.25 last week but still above that important $80 per barrel level. Supplies remain high, but the strike in France continues to negatively impact European refining output. There are now 62 crude-laden ships waiting for the port strike in Fos-Lavera to end so they can discharge their cargo.

US treasuries fell broadly as concerns entered into the market that the Fed's Quantitative Easing (QE) has already been priced into the market and that the ongoing easy money policies represented by QE will lead to inflation in the future. The 10-year yield closed at 2.567% up from 2.392% the previous Friday. Just as the previous week's interest rate move down was the largest one week move this year, this week's interest rate gain was a close second in terms of the size of the move. I said last week that the large drop spoke volumes about investors' expectations; this week's near reversal of that move speaks loudly about how uncertain investors have become. Corporate bonds were also hit with most bonds losing a small percentage of their values. Greatest losses among all bonds were found among the longer-term bonds which are more interest rate sensitive than intermediate or short-term bonds.

IT'S THE FED OVER AND OVER AND OVER AGAIN

The dominating economic story for the third week in a row is the Federal Reserve and its focus on stimulating the US economy by increasing the money supply through the purchase of securities through the Fed's Open Market Committee. My previous two Weekly Updates have addressed this subject in detail. This week's news was mostly focused on Fed Chairman Ben Bernanke's speech Friday morning in Boston where he made several key points:

Inflation is too low. He stated that he thought the appropriate core inflation rate should be 2%.

Unemployment is too high and needs to come down.

The Fed will take further steps to stimulate the economy such as holding short-term rates down and adding liquidity to the economy-more quantitative easing.

The equity markets may be hoping for a huge injection of new cash into the economy, but Bernanke did not give this indication. He also expressed concern over the lack of historical empirical evidence regarding the effectiveness of the non-traditional central bank tools he is employing. The bond markets appear to be rethinking the threats of inflation (if the Fed does less QE it could translate into higher rates), and the commodity markets are driven by a weaker dollar and economic fears.

WHAT ELSE IS GOING ON?

The foreclosure mess has hurt the banks and has cast uncertainty about the ability of the housing market to recover sooner rather than later. The issue revolves around technical processing procedures and not about mortgage holders who are current on their loans being forced from their homes. Home foreclosures in September reached a record 102,134. Additionally, foreclosure filings rose three percent to 347,420. This number represents one out of every 371 households in America. The rate of foreclosures should drop as moratoriums take hold. The net result will be slowing down foreclosures for now and extending the mess that the US housing market has become. Banking giants Bank of America and Wells Fargo each lost 9% of their stock value and Citigroup lost nearly 6% last week.

Initial jobless claims gained 13,000 to 462,000. The lack of job creation continues to be a serious issue.

Consumer sentiment as measured by the Thomson Reuters/University of Michigan index of consumer sentiment fell in October to 67.9. This follows a drop in September as well. The historical average of this index when the economy is in a recession is 74.1and 90.4 in expansions. The economy may be expanding, but not at a rate that is making the consumer feel particularly good.

There was good news last week in the form of retail sales which rose 0.6% in September across most retail sectors. Only clothing and department store sales dropped. Because the consumer remains such a significant part of the economy, this was a very good report.

Looking Ahead

I have said many times that I am not a prognosticator. I do not have the ability to predict what financial markets will do, nor can anyone else for that matter. However, I can look at the technical indicators and get a sense of where we are and what that means to you.

The New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 69.87 and has been improving week after week. A reading of 70 indicates that the markets have become "overbought." While this statistic does not say that a correction is certain in the near-term, it does indicate that the chances of a pull back have increased. The NYSEBP peaked on April 26th at 80.69 and fell back to 37.6 by June 8th. What this tells me is that there is more risk in the market, not less; and new equity positions should be carefully considered before entering.

All major international indexes are all positive right now with demand clearly in control.

The Dow Jones Corporate Bond Index has pulled back slightly but remains positive while the Barclays Aggregate Bond Index, with its heavy weighting in US treasuries, has turned negative. I am not suggesting reducing current bond holdings, but I am watching this trend closely.

The Dorsey Wright & Associates Dynamic Asset Level Indicators have International and US Equities favored. Commodities recent positive move has pushed Bonds to fourth and Currencies remain last. Small and mid capitalization stocks are favored over large cap, and equal-weighted indexes favored over capitalization-weighted indexes. Emerging markets remain favored on a relative strength basis, but developed markets have come back strongly in the past two months.

The markets have the feeling that they may be reaching an inflection point. The technical indicators that I follow are signaling higher risk levels. If or when they turn is unclear; however, positions must be watched closely. Earnings season will begin in earnest this week and investors will be listening closely to corporate earnings and, more importantly, corporate outlooks as the overall economy continues to be very sluggish. The mid-term elections are just a few weeks away and investors may begin to anticipate a more business-friendly Congress emerging.

If you have any questions about the overall relative strength of your portfolio and would like my analysis, please do not hesitate to give me a call.

Corporate bonds contain elements of both interest rate risk and credit risk. Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value. U.S. Treasury bills do not eliminate market risk. The purchase of bonds is subject to availability and market conditions. There is an inverse relationship between the price of bonds and the yield: when price goes up, yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity. Some bonds have call features that may affect income.

As always, if you have any specific questions on your portfolio or wish to talk to me, please do not hesitate to call.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Sincerely,

Paul Merritt, MBA, AIF(R). CRPC(R) Principal NTrust Wealth Management

Past performance is not indicative of future results and there is no assurance that any forecasts mentioned in this report will be obtained. Technical analysis is just one form of analysis. You may also want to consider quantitative and fundamental analysis before making any investment decisions.

Information in this update has been obtained from and is based upon sources that NTrust Wealth Management (NTWM) believes to be reliable, however NTWM does not guarantee its accuracy. All opinions and estimates constitute NTWM's judgment as of the date the update was created and are subject to change without notice. This update is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities must take into account existing public information on such security or any registered prospectus.

The bullish percent indicator (BPI) is a market breath indicator. The indicator is calculated by taking the total number of issues in an index or industry that are generating point and figure buy signals and dividing it by the total number of stocks in that group. The basic rule for using the bullish percent index is that when the BPI is above 70%, the market is overbought, and conversely when the indicator is below 30%, the market is oversold. The most popular BPI is the NYSE Bullish Percent Index, which is the tool of choice for famed point and figure analyst, Thomas Dorsey.

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

Securities and Advisory Services offered through Commonwealth Financial Network(R), Member FINRA/SIPC, a Registered Investment Adviser.