Tuesday, July 27, 2010

The Weekly Update is back after missing the past two weeks due to illness and an unforgiving travel and work schedule. Over these few weeks the markets around the world have shown strength coupled with continued volatility.

For the month of July the Dow Jones Industrial Average (DJIA) has gained 650 points (+6.65%) closing at 10,425. The S&P 500 has kept pace gaining 72 points (+6.98%) closing at 1103. For the year the DJIA is essentially flat (down 3 points from its 2009 close) while the S&P 500 is off just over 1% (12 points below its 2009 close).

The MSCI (EAFE) World has continued its recent out performance of US indexes gaining 7.6% in July and cutting its 2010 losses nearly in half. For the year the MSCI (EAFE) is down just over 8%. The Euro also improved against the dollar closing Friday at $1.2904 up nearly 6 cents for the month. Both the MSCI (EAFE) World and the Euro slowed noticeably this past week leading up the widely anticipated release of the European Union's (EU) stress tests on the major banks. Those results were released early Friday evening in Europe and I will discuss them further below.

US treasuries have traded in a very tight range and closed Friday at 2.998%. As equity markets recover from their recent lows, it would be normal to see interest rates rise as investors reduce their "safe" holdings in treasuries and shift to more risky stocks. By remaining under 3% for now, investors are indicating that there may still be some leeriness about a more substantial return to stocks. US corporate bonds saw very small declines in their returns over the past week but are still showing positive growth for the month. If the strength in equity markets persists, expect most bonds to continue to slip. Two exceptions to this trend would be in high yield and international sovereign debt funds.

Gold pulled back early in the month but steadied somewhat last week. An ounce of gold settled on Friday at $1187.80 as European debt jitters eased and Fed Chairman Bernanke continued to forecast slower than expected growth easing inflation fears. Gold can continue to be held in portfolios as a hedge against the unknown.

Oil has continued to rise in July closing at $78.98 per barrel on Friday. The gain in oil prices has trended to move with the equity markets as oil traders see a stronger stock market as a proxy for future demand for oil. However, some analysts are voicing concerns that this link is breaking down as inventories rise faster than demand. Questions remain about whether the recent rise in stock markets is signaling a true recovery and the return to more robust economic growth and thus demand for oil.

RENEWED STRENGTH IN STOCK MARKETS

July has been a very good month for stock markets. The most oft cited reasons for this has been the strong 2nd quarter earnings reports from US companies and the improved debt outlook in Europe. I share this enthusiasm tempered with my continued caution.

My caution comes from a number of concerns:

·First, my relative strength analysis of the five major asset categories (US stocks, International stocks, Bonds, Commodities, and Currencies) continue to favor Bonds and by default, cash. When this relationship exists, it is imperative to remain cautious.

·Second, a number of critical economic indicators remain negative or neutral at best. Jobless claims rose last week and overall unemployment is still at 9.5%. The White House's own economists expect the unemployment rate to remain above 8% in the lead up to the 2012 presidential elections. Additionally, new home starts are still far below average as are sales, and reports of rising foreclosure rates does not bode well for growth in this important sector.

·Third, rising federal deficits will become more problematic. This year's federal deficit is expected to be around $1.5 trillion dollars and the federal government is now borrowing 41 cents of every dollar spent. The government will be forced to cut spending and raise taxes to address this issue-not a recipe for growth.

·Finally, keep watching the quarterly GDP numbers. GDP growth between 2% and 3% would indicate the economy is simply marking time, below 2% and greater than 0% would say the economy is not growing enough to sustain itself, while below 0% would be a double dip recession. I am not suggesting that we will fall below 0%, but I believe those economists who are predicting the 2nd half of 2010 GDP growth to fall within 1.5% and 2%.

I do believe that it is possible to take some stock positions but only in the most technically sound investments.

STRESS TESTS RESULTS FROM EUROPE

A highly anticipated event was the release of the EU's stress tests on major European banks.

On Friday those results were published and to many investors' relief, only seven banks failed the stress tests indicating a need to raise a total of €3.5 billion ($4.51 billion) for proper capitalization. This was better than expected and may give European stocks a boost in the weeks ahead.

I am certainly pleased by this news; however, there is always a "but" these days. A number of analysts both in the US and abroad have voiced concerns at just how rigorous the tests were. Their concern centers around the issue that the evaluations did not test the default of any sovereign debt currently held on the banks' books. The risk of sovereign debt default is precisely what led Europe into its current debt crisis and to not test this scenario has cast some doubt on the results.

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.p> Until my major asset category relative strength analysis favors stocks, I will continue to underweight stocks. Remember that investing is not about today and tomorrow, but rather next month and next year. There is a lot of noise out there right now and it is imperative to keep short-term gains and losses in perspective.

With the good stock performance over the past couple of weeks, the New York Stock Exchange Bullish Percent (NYSEBP) has risen to 46.57% meaning that almost half the stocks traded on the New York Stock Exchange are now in a point and figure buy status. Even more importantly the trend now indicates that demand is back in control of stocks. Because of this, I will continue to look for limited exposure to technically strong stock investments.

For now, emerging markets continue to show greater relative strength on the international side. I also continue to favor small and medium capitalization companies over large ones. Growth is preferred over value.

For bonds I favor high quality corporates and foreign sovereign debt. High yield bonds are attractive as they correlate to the stock markets well. One point of caution...small and mid cap stocks, emerging markets and high yield bonds all tend to have higher volatility than large cap companies and investment grade bonds. So keep that in mind as portfolio values surge up and down in the daily battle between the bears and bulls. Do not take on more risk than you are comfortable with, and open your statements when they come in the mail.

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, July 7, 2010

Weekly Market Update July 5, 2010

US markets continued to slide as economic data signaling slowing growth renewed fears of a second recession at worst or anemic growth at best.

For the week, the Dow Jones Industrial Average (DJIA) lost 457 points (-4.51%) closing at 9686 and the S&P 500 lost 5.03% closing at 1023. Both indexes have broken below their initial support levels of 9800 and 1050 respectively. The next support level for the DJIA is 9300 and 1000 for the S&P 500. For the year the DJIA is now down 7.11% and the S&P 500 is down 8.30%.

The MSCI (EAFE) World lost 2.51% and is now down 14.76% for the year. The Euro posted a weekly gain of 1.5% closing at $1.2560 up from last Friday's close of $1.2377. The better relative strength performance of the MSCI (EAFE) and the gain in the Euro was the result of a series of positive news stories from the Euro Zone.

Oil fell sharply for the week closing at $71.20 for an 8% to 9% drop from last week reflecting fears that global economic sluggishness will curtail demand. Gold also fell dramatically dropping slightly below the psychologically important $1200 per ounce before closing on Friday at $1207.70. This 3.8% drop illustrates what I refer to as the "schizophrenic" nature of investor sentiment about the yellow metal recently. One week gold is a safe haven, the next a speculative investment, and so the story goes. With better news coming from Europe and the stabilizing of the Euro, gold lost much of its appeal to European investors as a safe haven and demand fell--for now. Gold remains a strong technical asset and above its long-term support of around $1000 per ounce. Base metals fell again following the less optimistic economic news particularly from China.

Prices of US treasuries gained and pushed the 10-year rate down below 3% closing Friday at 2.9770%. It goes without saying that bond investors see little upside to the US economy in the near term and do not expect the Federal Reserve to raise rates anytime soon. Corporate bonds continued to show strength and most bond categories gained in value during the week.

LITTLE GOOD NEWS ON THE ECONOMIC FRONT

Last week I addressed the many negative data points coming out about the markets including low home sales, European debt concerns, and a Fed report that indicated that the economy was slowing.

On Friday the final blow came in the news of a very lackluster jobs report showing the first overall monthly loss this year. While most of the losses were attributed to the elimination of temporary census jobs, the real damage came from an increase of just 83,000 private-sector jobs. Overall the unemployment rate fell from 9.7% to 9.5% as another 652,000 Americans quit their active job searching. For May and June the number of people no longer looking is greater than 1 million. The concern now is what happens when these discouraged workers attempt to reenter the job force when job creation does begin. Additionally the average number of hours worked and wages also fell.

One bright spot is the expectation that inflation is not a problem now or in the foreseeable future. Consensus is that the Fed will not raise interest rates in the near future making investments in bonds at this point still attractive.

I remain concerned about the impact of large state government deficits. California, New York, New Jersey, Michigan and Illinois are all locked in political combat as fiscal policies are debated. What is certain is that each of these states is broke and only the infusion of federal dollars will keep these states from major financial reforms. These reforms most certainly would require significant spending cuts which in turn would be another drag on the overall economy.

NEWS FROM EUROPE IMPROVED

A series of stories coming from Europe have settled those markets for now and helped the Euro gain against the US dollar.

Most significantly, Spain's debt issuance went well. The country had no problems raising €7.5 billion ($9.4 million) of three-year notes indicating that the private sector was still prepared to lend to Spain. Also the Greek finance minister reported that his country was ahead of pace to dramatically cut its debt this year, and the French finance minister said that both French and European banks are in good shape based upon recent stress tests.

European Central Bank President Trichet spoke out over the weekend saying that the European governments were on track with fiscal policies aimed at limiting deficits and that growth would return once budgets were under control. This tended to hurt markets more than it helped as all major European indexes were down on Monday, July 5th, by some 0.3% to 0.5%.

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 may be rallies along the way given the selling pressure the markets have been under recently; and if headlines are any indication, the contrarian view would be to buy now. I prefer to wait until the market signals a sustained trend. Additionally, I believe there remain very substantive economic issues such as the impact of all the legislation coming out of Washington that must be worked through and that will take time. Additionally, the housing and employment data must get better. A jobless recovery will not sustain the markets, nor will falling housing prices continually pushed down by the vast number of foreclosures and short sales. However, by continually scanning all the market sectors using relative strength analysis, I will be able to keep you apprised of where positive trends are emerging.

The New York Stock Exchange Bullish Percent (NYSEBP) closed on Friday at 38.60% meaning that only about one in three stocks is in a point and figure buy status. This was a drop from last Friday's close of 48.62%. Anything below 30% is considered oversold and the markets are clearly in a negative trend. All short and intermediate-term indicators that I follow are all negative and all broad market indicators were down as well. The only consistent gains were found in the bond markets as corporates and treasuries continued to do well.

A key report due out on Tuesday is the Institutional Supply Management's (ISM) non-manufacturing job index. This index focuses on the substantial service sector employment area. The index stands at 55.4 and anything greater than 50 will show increasing growth in the service sector; however, the rate of growth slows as the number gets closer to 50. Below 50 indicates negative job growth in this all important sector.

While every sector was down last week, several unfavored sectors have shown better relative strength than others: Utilities and Telecom. These sectors may simply be benefiting from defensive rotation, but outperform they did. Investors may also be turning to these sectors to take advantage of the dividends typically paid by utilities and telecom companies. International markets also outperformed, but one week does not make a trend.

I continue to hold my opinion that while treasuries are very 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. Forward email This email was sent to paul@ntrustwm.com by paul@ntrustwm.com. Update Profile/Email Address | Instant removal with SafeUnsubscribe™ | Privacy Policy. Email Marketing by NTrust Wealth Management | 780 Lynnhaven Parkway | Suite 190 | Virginia Beach | VA | 23452 Send a test version of your email to yourself, and to others including a personal message. Up to 5 addresses may be entered separated by a comma ",". Email Address(es): paul@ntrustwm.com (Separate multiple addresses with a comma ",") Personal Note: Send both HTML & Text versions View HTML Version View Text Version View Printable Version