Tuesday, June 29, 2010

Market Update - June 27, 2010

After two up weeks markets reversed themselves amid a spate of negative economic news.

For the week, the Dow Jones Industrial Average (DJIA) lost 307 points (-2.94%) closing at 10,144. The S&P 500 lost 3.65% closing at 1077 flirting again with the important support level of 1050. For the year the DJIA is now down 2.73% and the S&P 500 is down 3.44%.

The MSCI (EAFE) World lost 2.62% and remains down double digits for the year losing 12.57%. The Euro was essentially flat losing just $0.0007 for the week closing at $1.2377.

Oil rallied and closed the week at $78.86 reflecting concerns over low gasoline inventories in the US and a brewing storm in the Gulf of Mexico that could possibly disrupt oil production and refinement in this critical region. Gold gained just over $27 per ounce closing the week at $1256.20. Gold rallied on the negative economic data reported during the week. Base metals continued to rebound strongly following the appreciation of the Chinese yuan.

Prices of US treasuries gained and sent the 10-year rate down to 3.1096% from last Friday's close of 3.2328%. This interest rate is the lowest Treasury yield weekly close so far in 2010 and reflects continued concerns about US and global economic growth. Corporate bonds also showed strength and most bond categories gained in value during the week.

ECONOMIC CONCERNS RESURFACE

As I discussed last week, investors are searching for confirmation that economies around the world are stabilizing and growth is returning.

This search hit a snag as the US government revised the final 1st Quarter GDP number down to 2.7% from April's initial report of a 3.2% gain. Additionally, new home sales in May reached a record low and with inventories of existing homes at very high levels, it may take several years to restore a balance in supply and demand within this important sector. Capping all of this news was the Federal Reserve's statement on Wednesday which was interrupted to suggest that economic growth, while present, is not particularly robust and that low interest rates will be with us for the foreseeable future. Internationally, the cost of insuring Greece's sovereign debt has reached record levels implying that private investors now consider the likelihood of default within the next 5 years at 69%. This makes Greece the second worst bet (behind Venezuela) among all countries.

POLITICS AND THE ECONOMY

The long-anticipated Financial Reform Bill emerged from conference and appears ready for the President's signature.

Bank stocks rallied on Friday after initial details revealed that some of the most draconian constraints on banking were reduced or eliminated. As far as the long-term impact on the financial system, we will have to follow Sen. Dodd's observation when he suggested that we would have to wait and see how the 2000+ page bill works out.

The G20 Summit has been taking place over the weekend in Toronto and it appears that a general consensus has emerged where the world leaders have agreed to take steps to reduce debt levels in half by 2013 and that countries should not rapidly withdraw stimulus spending until economic growth is firmly in place. A key differential is that countries like Germany plan to reduce their deficits by austerity measures, while the US expects economic growth to help reduce the percentage of deficits in relation to GDP. Most developed countries agreed that a global bank tax should be imposed to help pay for the bailouts to these banks; however, Canada, Brazil and India oppose this measure. It remains to be seen if any of these goals will be met. China was praised for allowing the yuan to float and help generate exports to that country. I will be following the yuan now over the weeks and months to come to see if our exports improve as a result.

Looking Ahead

My generally cautious outlook on markets remains in place and I believe that it is better to take a more conservative position and give up opportunity rather than risking the loss of capital at this time.

There are many different opinions about the direction of the economy and for each economist who believes there is a chance of a second recession (double dip) there is an economist who believes that corporate profits will rise dramatically next year and we could see strong market growth. I reiterate that I do not know which view will prevail, but I will react accordingly. One of the very big advantages to following a relative strength strategy is that this investing strategy is not based on a hunch or gut instinct, but rather firm data points indicated by the analysis provided by Dorsey Wright & Associates (DWA).

Currently major indicators continue to support over-weighting cash and bonds while some equity positions can be taken in technically sound investments. An encouraging sign last week was that as the major indexes lost across the board, the underlying technical indicators like the New York Stock Exchange Bullish Percent (NYSEBP) did not lose and remained steady.

The markets are presently range bound. The DJIA has support at 9800 and resistance at 10,900, while the S&P 500 has support at 1050 and resistance at 1170. In other words there is simply no clear direction in the markets.

Favored sectors include Aerospace Airline, Machinery and Tools, Real Estate, Restaurants, and Savings & Loans. Only strong technical positions should be entered in these or any sector. Broad market investments continue to favor the small and mid cap sectors in the US; and internationally, emerging markets continue to show greater relative strength over developed ones.

I continue to hold my opinion that while treasuries are strong, they are very expensive at this point in time and new positions should be entered into thoughtfully. Corporate intermediate-term bonds remain favored.

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, June 23, 2010

Weekly Market Update - June 20, 2010

The never ending search for some verification, some confirmation that economic growth is here to stay has begun to consume investors much as it seems Ponce de Leon was consumed by his search for the Fountain of Youth. It appears that investors received something of a sign this past weekend in the form of a policy change from Beijing...but I get ahead of myself.

The stock markets had another good week. The DJIA gained nearly 240 points (+2.35%) closing at 10,451. The S&P 500 also gained 2.37% closing at 1118. Both of these major indexes have now posted two 2%+ weeks back to back-the best for 2010. For the year, both the DJIA and S&P 500 are now positive again up 0.22%. Nearly all of the gains of the week occurred on Tuesday with the other four trading days very subdued compared to recent volatility. Not even the Quadruple Witching on Friday stirred much movement in the markets.

The MSCI (EAFE) World gained an impressive 4.15%, but this broad international index continues to trail both major US indexes on an absolute basis. For the year, the MSCI (EAFE) is down 10.22%.

The Euro rebounded for the second week in a row closing at $1.2384 up from last week's close of $1.2116. This rebound comes despite news all during the week in which Spanish banks were seen as under real pressure due to their increasing difficulty in obtaining short-term loans from other banks. EU economic policy makers are dealing with this problem as well as the overall strength of banks from other EU countries. Expect to see more news on this subject in the coming weeks-for now it has returned to a back-burner issue.

Oil has rallied as the dollar weakened against other currencies. By the end of the week oil was back over $75 per barrel. There are no signs that the upward price pressure on oil is abating.

Gold settled on Friday at record levels closing at $1257.20 up $27 (+2.2%) for the week. Uncertainty in the financial markets remains the basis for gold's strength.

Prices of US treasuries gained slightly dropping the 10-year rate down to 3.2250% from 3.2328%. General fears around the world continued to push investors into US treasuries. Corporate bonds continued to provide small, but positive gains for the week.

THE ELUSIVE SEARCH FOR GROWTH

In general, the economic news of the week was not good.

Jobless claims were unexpectedly higher, housing starts and permits tumbled in May, the Philadelphia Fed's general economic index fell to a 10-month low, and Spain's banking problems all signaled slower than desired economic growth. Yet, the markets held on to their early week gains and posted a positive week. As I said last week, the fact that the S&P 500 held at 1050 and the DJIA at 9800 were very good signs. Additionally, the short-term indicators that I follow have turned positive meaning that I will be looking to add selected high-quality equity positions in portfolios. The longer-term indicators are still cautious, but this has been the first time in many weeks that the equity markets have shown some short-term strength.

CHINA ANNOUNCES DECISION TO LET YUAN FLOAT MORE FREELY

The biggest economic news over the past week was this weekend's announcement by China that Beijing was willing to loosen the tight link to the US dollar.

The US and other developed nations have been pressing China to decouple the Yuan from the US dollar. Critics of China's policies have argued that by keeping the Yuan artificially low, China was undermining global trading by undervaluing their exports to the US and other countries and keeping prices of imports artificially high. The Bulls see this as a long-term positive development enabling US manufacturers to be more competitive in the Chinese markets, while the Bears say that this will do little to fix the longer-term nature of the economic problems in the US and other developed countries-most notably high government spending and excessive national debts.

What is most likely to happen will be that basic commodities like oil, gas, and metals will rise in price as China uses a cheaper Yuan to purchase these goods on the open market. Whether a more expensive Yuan translates into greater exports to China remains to be seen. I would also expect prices of some US goods to rise given the amount of products we consume which are manufactured in China.

Finally, the Chinese decision to act on the Yuan issue over this past weekend will have a major impact on the G20 Summit starting this Saturday, June 26th, in Toronto. The Yuan/US dollar issue was expected to be a major topic of the meeting. Now that is off the table and I believe the Chinese deftly moved the agenda away from them and back to the US and EU.

Looking Ahead

The news from China is certainly significant and I would expect to see a positive reaction to the news near-term. As I have stated, the short-term Dorsey Wright & Associate indicators that I follow have also been turning positive over the past few days. Good signs for now. It is yet to be determined if the news from China will be sufficient to push stocks back into an emphasized status on the longer-term indicators. For now the favored asset categories remain Cash and Bonds.

I remain focused on very strong technical stocks and sectors. Small cap and mid cap remain favored on a broad market basis so you can keep exposure there. Emerging markets are showing greater relative strength compared to developed ones. Real estate continues to be a strong sector play within the US as has the oil services sector.

Treasuries are very strong; however, I remain extremely concerned that treasuries are very expensive at this point in time and new positions should be entered into thoughtfully. Expect some weakness for now as investors move away from US treasuries in favor of more risky assets. I continue to favor US Corporate Intermediate-term bonds and some international bond exposure. I also believe that short-term bonds can be a good alternative to cash.

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, June 15, 2010

Weekly Market Update - June 14, 2010

The US markets rallied this week with an especially strong Thursday giving the Dow Jones Industrial Average (DJIA) its first up week in a month.

For the week, the DJIA gained 279 points (+2.81%) closing at 10,211. The S&P 500 also gained 2.51% closing at 1192. Nine trading days into June (of 22) the DJIA is up 0.73% and the S&P 500 is up 0.20%.

The MSCI (EAFE) World gained 1.06%, but this broad international index continues to trail both major US indexes on a relative basis. For the month, the MSCI (EAFE) is still in negative territory down 0.3%. The Euro rebounded a bit closing the week at $1.2116 up from last week's close of $1.1973. Oil pulled back on Friday to $73.78 after rising to over $75 per barrel on Thursday. Some analysts I follow suggested that this downward move in oil was attributed to the negative retail sales number that came out Friday morning fueling (no pun intended) concerns that economic growth is not as substantial as hoped. It appears that the price of oil is becoming a barometer of anticipated future economic growth rather than being based upon traditional supply and demand fundamentals. Gold gained just over $8 per ounce closing the week at $1230.20. Yet again it appears that gold is gaining as an attractive alternative to stocks and currencies. Base metals rebounded strongly on news of China's good export data renewing optimism that this largest consumer of metals such as copper, nickel, and lead would resume buying after a month or two slow down. Prices of US treasuries fell slightly pushing the 10-year rate up to 3.2328% from 3.2077%. Treasury prices did rise on Friday after the release of the retail sales numbers. For the week, strongest gains in bonds were found in long-term US treasuries, investment grade corporate bonds, and emerging sovereign debt.

STOCKS STABILIZE

As noted, the DJIA found a return to winning ways this past week with the year's second best weekly gain. The S&P 500 had its fourth best week.

The rally was attributed to strong export data reported by China. As the world's manufacturer, investors believe that the strong export data reflects continued global demand for products and is a leading indicator of economic strength elsewhere. With this news, money rushed into the markets driving up stock prices and reversing, for now, a negative trend in the markets. Additionally, a slightly favorable report on new jobless claims helped fuel the rally. Investors are hanging on any news to get confirmation that the US and global economies are recovering.

NEWS FROM CHINA AND ELSEWHERE

The stronger than expected export data reported by China this past week certainly pleased investors. What was less auspicious was the report that China's inflation grew at an annualized rate of 3.1% in May.

The Chinese government has a publicly stated policy of keeping inflation at or below 3%; but with recently approved wage increases for workers throughout China and negative real interest rates, there is going to be increasing demand on China to raise interest rates and slow their robust economy. This is an important story I will be following closely.

A report released on Sunday, June 13th, by the Bank for International Settlements showed that France and Germany have the most to lose if Greece, Ireland, Portugal and Spain are forced to default on some or all of their debt. Between the two, France and Germany own $1.58 trillion of debt. Expect France and Germany to remain as the only two real players in the Euro Zone's debt crisis. For now it appears that the bailout package has indeed given leaders time to work through these debt issues.

The oil leak continues in the gulf. What more can I say. Every talk show on TV and radio is covering this event around the clock. Let us all hope that the well gets capped and the oil clean-up saves the regional environment. In case you were curious, BP and Transocean have each seen their stock prices crushed. Over the past 30 days, BP has lost over 30% in value and Transocean has lost 32%. There continues to be a lot of risk surrounding these two companies.

Looking Ahead

While I was pleased to see the markets have a good week, I remain cautious and defensive at this time.

Both the S&P 500 and DJIA held above important support levels last week-1050 for the S&P 500 and 9800 for the DJIA. Both indexes have moved well above these numbers relieving some of the pressure weighing on stocks. The New York Stock Exchange Bullish Percent (NYSEBP) gained slightly for the week closing at 39.08. Remember that this number is calculated by looking at every stock traded on the New York Stock Exchange and seeing if the stock is in a point and figure buy or sell signal. Adding up all of the stocks in a buy signal and dividing by the total number of stocks gives us the Bullish Percent. Anything above 70 is considered overbought, below 30 is oversold, and in between is considered the normal range for stocks. For now the number is telling me that the risk level for stocks has been reduced significantly from just a month or so ago when the NYSEBP was above 80%.

There have been a couple of sectors that continue to outperform and it is there I am looking for ideas when the green light comes back on for stocks. Real estate, consumer discretionary and technology continue to hold the top sector spots on a relative strength standpoint. Looking at the market in broader terms, emerging markets are showing renewed strength and small and mid-cap stocks remain on top from a relative strength standpoint. Commodities, while strong performers this past week, continue to remain very volatile and should be considered in small doses and only if you have the stomach for such gyrations in a portfolio.

There has been no change to the broad asset class indicators that I follow. Bonds and Cash are favored so I continue to recommend investment in quality bonds, especially corporate intermediate-term. You can continue to hold strong relative strength equities, but you must be very selective and make sure your positions are the trending above their peers. If you have any questions about the strength of any holdings you may have, please give me a call and I will review each with you.

Treasuries are very strong; however, I remain extremely concerned that treasuries are very expensive at this point in time and new positions should be entered into thoughtfully.

On a final note, this Friday (June 18, 2010) will be the second Quadruple Witching this year and occurs when stock options, index options, index futures, and single stock futures all expire on the same day. Historically the week of Quadruple Witching is accompanied by greater volatility so don't be surprised if the recent volatility is extended into this week.

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, June 9, 2010

The first week of June continued the downward trend of all major indexes both domestically and internationally.

For the week, the Dow Jones Industrial Average (DJIA) fell 205 points (-2.02%) closing at 9931.97. For the year the DJIA is now down 4.76%. The S&P 500 lost 25 points (-2.25%) closing at 1064.88. For the year this index is now down 4.50%. The DJIA is down 12.2% from its high on April 26th and the S&P 500 is down 14.5% from its high the same day.

The MSCI (EAFE) World fell 21 points (-1.54%) and is down 14.85% for the year.

The Euro closed the week at $1.1973 from $1.2274. This drop has the European currency down 16.37% for the year. Major concerns for the Euro remain unabated.

Oil reversed its gains and closed down to just under $71 per barrel and gold gained nearly $7 per ounce closing the week at $1221.90. Base metals continued to drop reflecting the weak industrial demand across the world.

US treasuries gained driving the 10-year rate down to 3.2077% a fall of nearly 0.1%. Remember that a drop in interest rates reflects a gain in price and is signaling the continued flight to safety in US treasuries by investors around the world.

JOBS REPORT HAMMERS STOCKS ON FRIDAY

The DJIA jumped 225 points on Tuesday after President Obama and Vice President Biden both spoke indicating that they expected a good jobs report on Friday; however, this did not materialize.

While the report showed an overall gain of 431,000 jobs, investors quickly seized upon the anemic gain of just 41,000 private sector jobs causing investors to sell going into the weekend. This report shows continued weakness in the recovery and leaves most investors wary of making big bets in stocks.

ADDITIONAL CONCERNS

In addition to the weak jobs numbers, home sales also tumbled. While April showed a year-over-year increase of 48%, May sales fell an estimated 25% to 30% as the government's tax incentive for home buyers expired.

I think it is pretty clear that many summer purchases were pushed forward to capture the tax break and I believe that the overall housing market will continue to remain subdued this year until normal demand catches back up to the flurry of tax-incentive buying. Another hit occurred to the general sentiment of investors late on Friday when local Hungarian politicians announced their concern over that country's growing deficits. While national leaders denounced those comments, the mention of another European country at risk to a debt crisis unnerved global markets. I think it is pretty clear that investors are extremely nervous today. The news about the on-going ecological disaster in the Gulf of Mexico and questions about the impact on the economy, fears of escalating tensions in the Middle East and the Korean Peninsula, and global debt problems has heightened uncertainty. With uncertainty comes selling as investors go to the sidelines as they seek safety in bonds and precious metals. Not wanting to pile on to all the negative news, I do need to bring your attention to one other bit of bearish news that was released on Friday when the Fitch Ratings Service downgraded Connecticut's bond rating one notch from AA+ to AA citing the state's limited flexibility to fix its financial problems using means other than additional borrowing. This highlights the next major concern facing the US as more and more states fight an ever increasing burden of meeting their budgetary needs as revenues continue to fall. As I have mentioned in earlier Updates, a reduction of state spending will likely result in new job cuts and continued economic weakness. Higher taxes on all fronts is also a likely outcome adding another drag on economic growth.

Looking Ahead

With all of the negative headlines from around the world I still remain optimistic for the long-run. Bob Doll wrote in a Wall Street Journal op-ed piece today (June 8, 2010), there are lots of reasons to fear the markets right now but the long-term prospects of the United States remains among the strongest in the world. He cites the growth of US productivity as one of this country's best assets and says the relative market performance of the US compared to the world is proof of this. What Bob Doll and other market pundits cannot capture or explain is just when the markets will kick in and return to their winning ways.

The key to successful investing is patience. As has been the case for the past month or so, the indicators that I follow continue to warrant caution. The markets may be at a tipping point. A key support level for the S&P 500 is 1050. The S&P 500 has held this level since February (tested in late May and recovered) but a break below 1050 could signal a serious break with the next support level down at 990. While you may be tempted to buy right now, I think that it is imperative to wait until we see a major trend reversal. Remember that the markets do trend and until the current trend is reversed, it is better to remain cautious and hold money on the sidelines.

Rallies tend to occur in markets like this not because of strong demand but rather due to a reduction in supply. Only broad, sustained demand will turn the markets positive.

There has been no change to the broad asset class indicators that I follow. Bonds and Cash are favored so I continue to recommend investment in quality bonds, especially corporate intermediate-term. Given the current economic environment it is doubtful that the Fed will take any near-term action to raise interest rates thus keeping bonds and their yields attractive for now.

You can continue to hold strong relative strength equities, but you must be very selective and make sure your positions are the trending above their peers. If you have any questions about the strength of any holdings you may have, please give me a call and I will review each with you.

Treasuries are very strong; however, I remain extremely concerned that treasuries are very expensive at this point in time and new positions should be entered into thoughtfully.

This market will challenge every investor. Do not get impatient. As I said, I am optimistic for the long-term but don't want to get ahead of the markets. When the indicators tell us it is time to jump back in, I will tell you and relative strength analysis will signal who the new market leaders are.

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, June 2, 2010

Weekly Market Update - May 31, 2010

Volatility in May increased dramatically from April.

If you recall, April had 5 of 21 trading days where the Dow Jones Industrial Average (DJIA) gained or lost more than 100 points from the previous day's close. In May, that number jumped to 16 out of 20 days. The net result of all this volatility was a month where the DJIA lost 872 points (-7.92%) closing at 10,137 marking one of the worst May performances in 50 years. The S&P 500 fell 97 points (-8.20%) closing at 1089. For the year, the DJIA is now down 2.79% and the S&P 500 is off 2.30%. If there is any good news to take out of last week was that the two major US indexes rate of change dropped to under 1% (DJIA -0.56%, S&P 500 +0.16%) possibly signaling a pause while the markets digest all of the news.

The MSCI (EAFE) World Index fell 11.86% for the month and is down 13.52% for the year. Last week the MSCI (EAFE) managed a 0.90% gain.

The Euro closed the week down to $1.2274 from $1.2568. For the month of May, the Euro lost $0.10 (7.7%) continuing the long tumble from $1.4316 at the start of 2010. The Euro is likely to continue to show weakness given the challenges facing that part of the world.

Oil rebounded during the week gaining over $4 per barrel rising to just under $75 per barrel, and gold reversed its losing trend gaining some $24 per ounce to finish the month at $1215 per ounce. The long-term trend of gold has remained positive since 2008. What has not held up has been the more industrial metals such as copper, lead, and nickel. These metals have all seen significant pull-backs in recent months as demand from China has dropped.

Demand for US treasuries remains strong. For the week, the 10-year bond closed at 3.3033% a slight increase from last Friday's close of 3.261%. Rising interest rates signal less demand for US treasuries overall. However, rates did drop on Friday following the news that Fitch Ratings downgraded Spain's sovereign debt.

Fears in Europe Simply Will Not Go Away The news of Fitch's downgrade of Spain's sovereign debt from AAA one notch to AA+ worried investors and hurt US markets, the Euro, and helped US treasuries.

The downgrade reversed a couple of days of relative calm in Europe driving investors back into the worry and risk-avoidance column. I believe this is telling as to just how fragile the markets are. When the news is relatively benign, the markets show stability or even some growth; however, negative news really takes a toll on investors. Caution is still the order of the day.

The news from Israel following the storming of a Turkish flotilla of has suddenly jumped tensions in the Middle East adding to an already nervous world as North Korea and South Korea continue their sparring.

Volatility is Back

After a good start to the year in the equity markets, the turn of the calendar to May brought about unwelcomed volatility along with selling pressure in equity markets.

Volatility is always unpleasant and causes investors to worry and wonder about what the future holds. I suggest that if you look back over history, volatility typically marks a point of change within the markets. In the past ten years, the Dot-com bust ended NASDAQ's reign and signaled the emergence of the financial sector. The end of 2007 and all through 2008 saw the demise of the once great financial sector. Companies like Lehman Brothers and Merrill Lynch vanished or are now a subsidiary of some other conglomerate. In each of these cases, the market leaders going into a corrective, high-volatility phase were not the same ones that emerged later. This current period has much of the same feel to it.

So use volatility as a market indicator, a signal that change is underway. Be watchful for what new trends may emerge from the turmoil and be prepared to act.

Looking Ahead

The risk management indicators I track continue to shift to a defensive position. As a result, I have been recommending that certain client holdings be sold or reduced resulting in higher cash positions. This goes straight to the heart of my risk reduction philosophy as we are preserving wealth within a weakening market environment. While the volatility in the equity markets continues to rise, I will continue to seek out investments that I feel could help reduce overall portfolio volatility.

Over the coming weeks (or even months) we may have better opportunities to pick up solid values-so I believe it's wise to be patient. In recent Weekly Market Updates I have been stressing that I cannot predict how this market is going to go from here. Are we pausing before another bull run, or are the problems in Europe and elsewhere signaling the return of another bear market? If this is a market pause, how long could we be hobbling along (a sideways market)? I don't know and no one with a shred of integrity would tell you they do know. What we do know is that given the information we have at hand risk is elevated right now and reduced exposure to the equity markets is prudent. Put simply-the risk of owning a heavily weighted portfolio of stocks is too high for most investors.

If you continue to hold equities make sure you are holding the strongest companies or sectors on the basis of relative strength. If you are not sure how your stocks or mutual funds compare to their peers, please give me a call and I will review with you.

I continue to recommend investment in quality bonds, especially corporate intermediate-term. A portion of the investment can also include some quality international bonds.

Treasuries are very strong, however, I remain extremely concerned that treasuries are very expensive at this point in time and new positions should be entered into thoughtfully.

Oil is very much at the mercy of the global economy and strength of the dollar. I continue to believe both are working against oil for now.

Gold is much harder to predict because on one day it is a safe haven and on the next it is a risky asset class. I do know that the long-term trend of gold has been steadily going up for several years. If you want to own gold, my suggestion would be to do so in small quantities and not overweight your portfolio because of the schizophrenic nature of gold recently.

Finally, on a personal note, Virginia and I are going to Omaha this Thursday for a weekend visit to see my mother, my cousin and her family, and celebrate my brother's birthday. Therefore, my update will not be published until late Tuesday or early Wednesday. I will be available should the need arise.

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.