Wednesday, December 14, 2011

The first three days of December saw the Dow Jones Industrial Average (DJIA) rally 814 points (7.25%) following a coordinated announcement by western central banks that they were increasing liquidity for financial institutions around the world. This important step immediately calmed nervous investors who saw Europe rapidly approaching a Lehman Brothers moment as banks severely curtailed inter-bank lending. Interest rates fell sharply in Italy and Spain and equity markets rallied everywhere. Since then, equity markets have calmed considerably as investors digest the latest agreements emerging from the European Union (EU).

For the week, the DJIA gained 165 points (1.37%) and the S&P 500 added 0.88%, and the Russell 2000 led all major indexes with a 1.41% increase. For the year, the DJIA is now up 5.24%, the S&P 500 is still in negative territory down 0.19%, and the Russell 2000 remains off 4.88%.

Sector returns were mixed last week. Real Estate, Financials, and Information Technology were the leaders while Telecom, Materials, and Energy were the worst performing sectors. The difference between the best and worst performing sectors was just over 1.75% reflecting a lack of investor certainty about the markets. For the year, Utilities, Consumer Staples, and Health Care are all positive and exceeding the DJIA, while Financials, Materials, and Telecom are the worst performing sectors. Financials remain down over 15% so far in 2011.

European markets were flat last week. The MSCI EAFE index lost 0.89% and is up a marginal 0.06% so far in December. For the year, the European-heavy MSCI EAFE index is down nearly 14%. Globally, the Pacific Region leads with Thailand the best performing country in December. For the year, the US is significantly outperforming all major global regions. The Americas is down 3.40%, Europe is down just over 14%, Africa/Middle East is down nearly 20%, and the Pacific Region is down about 17%.

The Euro was virtually unchanged against the US dollar last week giving back a mere $0.001, and for the year is up just $0.001. The Euro has been under pressure since closing above $1.40 in late October as the Euro crisis depended, and even though the Euro off its lows in late November, the latest efforts by the EU has failed to create another strong Euro rally.

Commodities were generally negative last week. The Dow Jones UBS Commodity Index was down 2.26% as gold fell 1.73% and WTI oil gave back 1.70%. Natural gas and cocoa were the biggest losers last week while base metals (tin and lead) managed good returns. For the year, gold and precious metals have outdistanced all other commodity returns while natural gas, cocoa, and base metals have all significantly underperformed the broader commodity and equity markets. Commodities, other than precious metals, reflect global growth expectations and as economic growth remains subdued, commodity prices remain subdued as well.

Bond markets have seen several weeks of modest gains. The US 10-year Treasury yield rose slightly last week from the previous week's close of 2.042% to Friday's close of 2.065%. However, the bond markets are also reflecting investor uncertainty as the Euro debt crisis plays itself out in Brussels. Like US sector performance, there was a fairly tight dispersion of returns between the various bond sectors with preferreds, intermediate-term municipals, and high yield leading the way while long-duration Treasuries and Inflation Protection were the worst performing sectors. For the year, long-duration Treasuries lead all bond sectors while preferreds and high yield are the worst. All of the major big four European countries: Germany, France, Italy, and Spain saw interest rates fall even though Italy and Spain have rates considerably higher than Germany and France. Standard & Poors has placed 15 of the 17 Euro Zone countries under review for downgrades early in the week and also placed several major European banks under review. No doubt this news helped to push EU member countries to move closer to a unified financial organization.

GROUND HOG DAY?

I am getting tired of writing about the EU debt crisis and you are probably getting tired of reading about it. However, because of the impact the EU debt crisis has on all financial markets, I have continued to remain focused on what is going on across the Atlantic.

I am suffering from writer's fatigue because it every week seems to be just more of the same. The bond markets throw a temper tantrum, interest rates jump, and then EU leaders come together announcing that this time they must get things fixed. After much deliberation, the EU ministers walk away from the table announcing that they have taken new strides to address the problem, markets jump, and then after investors have time to dig into the details, the markets pull back and we repeat the cycle...wash and rinse, wash and rinse, wash and rinse is how I have characterized this process. I cannot get the image of Bill Murray's character in the movie Ground Hog Day out of my mind.

Last week, the EU did make some important strides towards fiscal union as every EU member, except Great Britain, agreed to subject their individual country's budgets to greater EU oversight and control. Each of these country leaders must now go back to their respective parliaments and get legislative changes passed to implement these new agreements. In the meantime, the European Central Bank (ECB) under new leadership has shown a greater willingness to help out the region in the short-term by lowering interest rates for the second time to 1.0%, offering unlimited 36-month credit to EU banks, and cutting the reserve requirements for commercial banks from 2% to 1%. In sum, these changes are all a positive step, however, as investors have been burned before, there was not a rally in the stock markets.

I believe that the debates that are underway in the EU are long overdue. The British were never fully enamored with EU. They never surrendered the Pound for the Euro, and Prime Minister Cameron was the only EU member to not vote for the new fiscal controls. This has caused old conflicts to resurface as Der Spiegel said that "the British still hadn't finished mourning over their lost empire," and "instead of turning toward Europe, Britain looked west to the US... (a)nd to this day, the UK feels much closer to America than it does to the frogs and the krauts on the other side of the English Channel." Rather strong rhetoric coming from Berlin, but I think the German's are forgetting the price the British paid in blood and treasure (and the help provided by the US) to defeat the likes of the Kaiser and Hitler which is still in the minds of many Britains. So considering the history of the 20th century in Europe, it is understandable that the British do not want to give up sovereignty to the folks across the Channel.

So as we wait and see about the latest version of EU fixes I continue to watch for prospects of economic growth in the EU. With all of the attention focused on unified fiscal policies, the structural impediments to long-term growth remain firmly entrenched. The International Monetary Fund is estimating EU growth for 2012 at an anemic 1.3%. We can only wonder if the political leadership in Europe understands that the real crisis in Europe is spending growth that substantially exceeds economic growth. A situation that we must also be concerned with here in the United States.

LOOKING AHEAD

The past six months in the markets have been driven by headlines emanating from Europe. We often hear commentators discussing "risk on" and "risk off" days. I discussed this concept in an earlier Weekly Update (October 28, 2011). A quick summary:

On days when Risk is On we generally see the following:

Stocks UP US Bonds DOWN International Bonds UP Commodities UP US Dollar DOWN

On days when Risk is Off we generally see the opposite:

Stocks DOWN US Bonds UP International Bonds DOWN Commodities DOWN US Dollar UP

Risk on or off is going to be determined by how successful the EU is at implementing the latest policy goals and re-establishing confidence in their sovereign debt. The jury is out and I would have a 50-50 chance of being right on predicting which scenario might prevail. The non-directional market this past week is just another indicator of the uncertainty felt by investors.

I do not believe that leaving the equity markets is fully warranted and continue to retain exposure to stocks, however, I continue to underweight European equities. So how do you look at the markets today with all the uncertainty? I believe a balanced approach is warranted. This means building a portfolio with both risk on and risk off assets.

I maintain that there should continue to be exposure to growth stocks, especially within the mid-capitalization space (risk on), however, I also believe that high quality blue chip stocks paying good dividends is a less risky option for equities (partial risk off). In the bond space, I favor a good blend of US (risk off) and International bonds (risk on), exposure to inflation protection (risk on), and high yield (risk on). While Commodity exposure provides a hedge against inflation (risk on).

The upcoming week will include several important reports from the federal government which should provide assessments about the current state of the US economy including: Retail Sales (Tuesday); Jobless Claims, Producer Price Index, Industrial Production, and the Philadelphia Fed Survey (Thursday); and the Consumer Price Index (Friday). Retail sales will be particularly important because it will include the first full week of holiday shopping.

As the year draws to a close expect the bumpy ride to continue. I am continually assessing investments to insure that they are technically and fundamentally sound. Give me a call if you have any questions.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. 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, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. 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. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

Tuesday, November 29, 2011

Markets everywhere suffered from the unrelenting negative news coming from the Euro Zone last week. The key headline was the poor auction results of a German bond offering this past Thursday. According to the Wall Street Journal, only €3.644 billion ($4.82 billion) out of an offering of €6 billion ($7.94 billion) of new debt was purchased causing shock waves across global markets. Doubt is gathering like a storm on the horizon about whether or not global leaders can remain ahead of their debt problems before private bond investors simply stop absorbing the massive debt issuance from heavily indebted countries. The failure of the Super Committee here in the US did not add any confidence to investors.

Headlines in the financial media described the last full week of November trading as the worst Thanksgiving week for the Dow Jones Industrial Average (DJIA) and the S&P 500 since 1932 on a percentage basis. The DJIA lost 564 points (-4.78%), the S&P 500 lost 57 points (-4.69%) and the Russell 2000 gave back another 7.39%. For the month, the DJIA is now off 6.09%, the S&P 500 is off 7.55%, and the Russell 2000 has pulled back 10.10%. All major indexes are negative for 2011. The Russell 2000 leads all major indexes down 14.99%, followed by the S&P 500's loss of 7.87%, and the DJIA is now down 2.99% for the year.

Every major US economic sector was negative for the week. Consumer Discretionary, Health Care, Utilities, and Consumer Staples managed to outperform the DJIA while Energy, Materials and Financials were the bottom three performing sectors. The divergence between the best and worst performing sectors was slightly more than 4% marking a relatively tight spread. For 2011, Utilities, Consumer Discretionary, and Health Care remain positive while Financials, Materials, and Industrials are the worst performing.

European markets continue to be under significant pressure. For the week, international stocks, as measured by the MSCI EAFE index, lost 5.66%. For the month, the index is down 12.2%, and for the year, it has lost 20.33%. This index has about 72% exposure to European companies and 28% weighted to Asia, principally Japan. Emerging markets continue to suffer along with developed countries and have lost about 5% more on average than developed countries.

The Euro continued to falter losing nearly three cents to the US dollar closing last Friday at $1.324. The move away from the Euro and to the US dollar reveals the lack of confidence investors have in the Euro and is at its lowest point versus the US dollar since October 3, 2011. A close of $1.30 or lower will provide a sell signal for the Euro against the US dollar.

Commodity markets remain in a negative trend. In addition to a stronger dollar hurting commodity prices, the general global economic contraction is hurting all commodity prices. Making headlines on the second and third pages of many financial outlets is the growing fear of a general European recession. Austerity measures, and the likelihood of coming government spending cuts, is hurting economic outlooks throughout Europe and commodity demand is falling as a result. The Dow Jones UBS Commodity index, a broad basket indicator of commodity prices, fell 2.18% last week, is down 5.18% for the month, and for the year it is off 12.72%. Natural gas, livestock, and energy were the best performing commodity sectors while base metals, timber, and broad agriculture were the worst last week. For the year, gold and precious metals have significantly outperformed all other commodities with energy also doing well. Natural gas, base metals, and timber are the worst performing sectors for 2011.

European bond markets tell the story of the severe problems facing European countries. As of market close on Friday, the Italian 10-year bond surged to close at 7.26% up from the previous week's close of 6.64%. Spain's 10-year jumped about 0.32% and the French 10-year added about 0.22% to their rates. Most worrisome was the spike in the German 10-year rate, which went from 1.967% the previous Friday to close last week at 2.263% (0.296%), pushing the German rate above the US 10-year Treasury rate (1.964%). Coupled with the falling Euro, rising US dollar, and flip between the US 10-year rate to the German 10-year rate, the private bond markets are clearly telling political leadership in Europe that little time remains to effectively address their problems. Long duration and middle duration US Treasuries were the best performing bond sectors last week while high yield and preferreds were the worst.

THE EVOLUTION OF THE EUROPEAN DEBT CRISIS

The European debt crisis has been in the headlines for almost two years now. Markets have ebbed and flowed based upon investor perceptions about how effectively the Euro Zone's political class has been dealing with the issue.

In the beginning it was a concern that Greece would have some difficulty tapping into the private bond market to continue financing its debts. The European Union (EU) stepped forward to create a bailout facility to help Greece keep borrowing costs under control. Greece assured the EU that it would implement effective austerity measures to bring its spending down to a reasonable level. When it became apparent that Greece could not or would not meet spending cut targets, the EU (primarily Germany and France) stepped forward and called for limits to additional funding for Greece without definitive progress. In the meantime, Ireland and Portugal both fell under the bond market's glare and they too required funds from the EU bailout facility to keep from defaulting on its debt. At this point, investors quietly started voicing concerns about Italy and Spain. Over time, investors realized that Greece would eventually default on its debt. This prompted another round of intense negotiations and a voluntary haircut by Greek bond holders of up to 50%. The general perception during all of this was that the Germans and French would do everything in their power to keep the Euro a viable currency. Today, there are growing concerns that this might not be possible.

Headlines over this past weekend indicated that individual countries were now looking at the impact of the dissolution of the Euro. What a difference even a few months makes! Whether it is a few countries that leave the Euro and return to their former currencies or whether the entire Euro project is abandoned is uncertain at this time. The impact this would have on the markets is also uncertain and it is all this uncertainty that is hurting equity markets. There has never before been a time when countries surrendered their sovereign currencies for a common one so there is no blueprint about how to deal with a possible decoupling.

The Germans in particular are strongly suggesting that an enhanced federalist approach to EU fiscal policy is necessary. I agree. The problem is that the treaties forming the EU do not have a mechanism to do this. Nor does the European Central Bank have the authority to start buying sovereign debt on a wholesale level like our Federal Reserve did in 2008. There are calls for the International Monetary Fund (IMF) to step in and provide funds to the European Financial Stability Facility (EFSF) for the same purpose. This option has been suggested because the Chinese and others with currency reserves have been unwilling to step forward and provide additional funds. Ironically, if the IMF does this ECB end-around, the US and Chinese will be indirectly financing the EFSF-not something most Americans or Chinese would like to see.

There is no assurance that the EU's political leaders will stay ahead of the bond markets. However, I would not dismiss this possibility. They will do everything in their power to get this situation under control and if they do, expect the markets to rally after last week's sell-off. In the meantime, be prepared for more of everything for the foreseeable future.

LOOKING AHEAD

Besides the trouble in Europe, several geopolitical problems need watching. Over the weekend, the NATO bombing of several Pakistani outposts has seriously hurt US-Pakistani relations and further destabilized that part of the world. Additionally, there were reports over the weekend that an official of the Iranian government said it would attack US missile defenses in Turkey and Israeli nuclear facilities if Iran were attacked. Besides the global threat of violence that would come from any military action, the supply of oil could be severely restricted and prices could skyrocket-at least in the short term.

I will be watching the European debt crisis closely. It will be important to see how the bond markets (seen through bond rates) respond to the efforts of the EU leaders as they push for treaty adjustments and what the IMF does. I do not think anyone knows how this crisis will play out either the short-term or long-term.

The New York Stock Exchange Bullish Percent (NYSEBP) continued to retreat over the past week falling to a level of 43.85% with supply still in control. This reflects a drop in overall risk in the markets from several weeks ago. Remember the analogy I like to use to illustrate the NYSEBP is that of a tight ropewalker, as the NYSEBP falls, it is like the rope getting closer to the ground meaning that there is less risk to injury if the ropewalker falls off during his walk.

Among the major asset categories I follow, US stocks remains first. Commodities and Currencies are at a virtual tie at second and third, Bonds are fourth, Cash fifth, and International Stocks is last. US stocks now fail the cash bogey check, however, that is not surprising given the recent drop in stocks.

Within US equities, mid capitalization growth stocks are the strongest on a relative strength basis. Equal-weighted indexes are preferred over capitalization-weighted indexes. I believe that high quality; large capitalization dividend paying stocks present a compelling story and appear to be showing strength as a defensive investment. Within sectors, Utilities and Consumer Staples are showing the best relative strength. I anticipate that volatility will continue during these uncertain times.

I continue to like gold and commodities in general. Gold for uncertainty and commodities as an inflation hedge. On a relative strength basis, Agriculture and Broad Basket commodity categories are favored.

Within the bond asset category, International Bonds and Inflation Protected Bonds remain favored.

There are several important economic reports coming out this week. The most important is the Unemployment Situation report on Friday morning. The consensus is for the unemployment rate to remain steady at 9.0% with a slight uptick in new jobs. Other reports key reports include the Consumer Confidence index on Tuesday, and the Initial Jobless Claims and ISM Manufacturing Index on Thursday. As has been the case in prior weeks, investors are looking for signs of economic growth in the US.

It appears that volatility is here to stay for now. I understand how this stresses every investor. I remain committed to investing in securities with high technical attributes, keeping allocations between stocks, bonds, and other investments in a range that allows you to sleep at night, and remember that investing is not a moment-to-moment exercise. If you have any questions about the current environment or your portfolio, please call me.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. 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, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. 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. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

Wednesday, November 23, 2011

Markets around the world remained in limbo this past week as politicians pontificated and postured. Yet with all of the seemingly determined efforts, investors see governments no better off and making little effort to seriously deal with the problems facing them. Only reluctant and minimal intervention by the European Central Bank to purchase European sovereign debt kept the situation in Europe from coming completely unglued.

The third trading week in November saw the Dow Jones Industrial Average (DJIA) give back 358 points (-2.94%) with three negative sessions out of five. The S&P 500 lost 3.81% and the Russell 2000 dropped 3.39%. For the month the DJIA is down 1.33%, the S&P 500 is off 3.00%, and the Russell 2000 is down 2.92%. With only six weeks left in 2011, the DJIA is up 1.89% for the year. The S&P 500 is down 3.34% and the Russell 2000 is off 8.20% for 2011.

All eleven major US economic sectors were negative for the week. Consumer Discretionary and Utilities were the top two performing sectors and managed to beat the DJIA. Financials, Energy, and Health Care were the bottom three sectors. For the year, Utilities, Consumer Discretionary, and Health Care are the top three sectors and are all ahead of the DJIA. The bottom three sectors are Financials, Materials, and Telecom. As noted in previous Updates, Financials is the worst performing sector by a wide margin reflecting investor concerns about uncertain exposure to the European debt crisis and the mortgage-debt overhang on bank balance sheets.

For the week, international stocks, as measured by the MSCI EAFE index, managed to outperform the US by losing just 1.64%. However, for the month, the MSCI EAFE is off 6.94% and for the year, it is down 15.55% significantly underperforming US markets. This brings me to another point. As of market close last Friday, the US is out-performing most of the world. Markets are down all around the globe. Russia is off 14%, China is down nearly 20%, India is down 32%, and Brazil is off 22%. Each of these countries may have its own explanation for such a poor year, but in total, we are seeing a tough investment environment everywhere.

The Euro weakened compared to the US dollar for the third consecutive week falling over 2 cents to close Friday at $1.352. Again, the story is the same. Fears over European debt has pushed investors to the US.

Commodity markets have become mixed and uncertain. In a week where US economic data was a little less bad than expected and the Conference Board's Index of Leading Economic Indicators posted a stronger than anticipated 0.9% gain for October, conventional wisdom says commodity prices should have moved upwards on future demand expectations, but just the opposite occurred. The Dow Jones UBS Commodity Index, a broad basket of commodities, fell 2.71% for the week. Gold lost $59.70 per ounce (-3.34%) and WTI Oil lost $1.81 (1.81%) per barrel. Lead and livestock were among just a handful of commodities to post gains.

Bond markets were little changed. Extended duration US Treasuries was the best performing sector while High Yield and Inflation Protection notes were the worse. All bond sectors out-performed the broad equity markets. The 10-year US Treasury yield fell last week to close at 2.003% compared to the previous week's close of 2.052%. The Barclay's Aggregate U.S. Bond Index closed Friday up 0.01% for the month and is now up 7.37% for the year.

WASH AND RINSE, WASH AND RINSE, WASH AND ..............

As I reviewed the many news reports of the previous week in preparation of this week' Update, I was struck by how little had changed in context or tone from earlier weeks. I am not suggesting that the political class is not working hard to stay ahead of the various problems confronting their countries, but I am saying that they are making no progress.

Interest rates in Italy pushed above7% for their 10-year treasuries until the European Central Bank(ECB) stepped in and brought rates down to 6.64% through open market bond purchases. As of the end of May, the ECB had bought €75 billion ($101.4 billion) of European sovereign debt, as of the end of October that number has jumped to €173.5 billion ($234.6 billion). These purchases have given politicians more time to achieve some kind of effective and meaningful structural reforms in dealing with the debt crisis. I am not sure, however, that any meaningful reforms have actually been achieved. To buy even more time, a louder chorus of voices is asking the ECB to greatly expand their bond purchases. The ECB has fought off efforts to expand its role since the treaty organizing the ECB does not allow for this type of activity. No agreement or solution appears imminent.

Here in the US the Super Committee has failed to reach an agreement in meeting its mandate to cut $1.2 trillion from the US deficit over the next 10 years. Unless there are some late night heroics, I am extremely doubtful that an agreement will be reached and the automatic cuts will be implemented beginning in 2013. In the meantime, the US debt crossed over the $15 trillion mark and this country adds $4 billion in new debt every day! The markets will no doubt see our government as fundamentally unable to govern itself responsibly.

So another week has gone by, and there is nothing new to report. The markets remain range-bound and surge or fall on the slightest innuendo or rumor. At least here in the US, the formal deadline of the Super Committee of November 23rd will force an outcome, but failure to achieve any deal at all will leave the markets with little confidence that our government has the ability to govern itself responsibly.

LOOKING AHEAD

The momentum in the US markets has shifted from demand to supply. Put another way, sellers are currently in control. The New York Stock Exchange Bullish percent (NYSEBP) has slipped into a column of O's and presently has a value of 55.16. This "middle of the field" position matches the 10-week distribution of prices which suggest that the market in general is fairly priced, neither over-bought or over-sold. A move by the S&P 500 below 1190 would be problematic and represent a violation of near-term support.

There has been no change in any of the major technical indicators that I follow other than the NYSEBP reversing back into a column of O's (supply in demand). Markets are range bound and investors are reacting daily to the latest headlines coming out of Europe or Washington. Spain appears to be in the process of replacing the Socialist Party with a more conservative one marking the third major leadership change recently in the European Union.

Among the major asset categories I follow, US stocks remains first. Commodities and Currencies are at a virtual tie at second and third, Bonds are fourth, Cash fifth, and International Stocks is last.

Within US equities, mid capitalization growth stocks are the strongest on a relative strength basis. Equal-weighted indexes are preferred over capitalization-weighted indexes. I believe that high quality; large capitalization dividend paying stocks present a compelling story and appear to be showing strength as a defensive investment. Within sectors, Utilities and Consumer Staples are showing the best relative strength. I anticipate that volatility will continue during these uncertain times.

I continue to like gold and commodities in general. Gold for uncertainty and commodities as an inflation hedge. On a relative strength basis, Agriculture and Broad Basket commodity categories are favored.

Within the bond asset category, International Bonds and Inflation Protected Bonds remain favored.

This coming week will be shortened due to the Thanksgiving holiday. All weekly key economic reports will be released by the late Wednesday. On Monday Existing Home Sales will be announced at 10 AM EST; Tuesday will see the most important report with the first revision to the 3rd Quarter GDP figure; and Wednesday is set for Initial Jobless claims, Durable Goods Orders, Consumer Sentiment survey, and Personal Income and Outlays.

Traditionally trading volumes will decrease as the week progresses. This does not mean that wide swings will not occur, but on smaller and smaller volume, these moves do not have the same significance as they would on more typical trading days.

I want to wish everyone a very Happy Thanksgiving. I sincerely hope that each of you have the opportunity to share the holiday with your families and friends and that each of us take a moment to remember how much we all have to be thankful for in these turbulent times. Please take a moment to think of our soldiers, sailors, marines, and airmen around the world who cannot be home with their families so we may enjoy the special liberties their sacrifices afford us. May God Bless them.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. 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, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. 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. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

Thursday, November 17, 2011

Equity and bond markets around the world have seen a spike in volatility as investors watched the Greek and Italian governments change leadership and attempt to keep the debt crisis in their countries from spinning completely out of control.

Nine trading days into November, the Dow Jones Industrial Average (DJIA) is up 1.7%, but the road to this small gain has been full of twists and turns as the average daily DJIA change from the previous close was 188 points. Seven of nine trading days saw gains or losses of more than 100 points and six of nine days saw gains, not losses. However, the average gain was 158 points while the average loss was 249 points. Looking at the other major US indexes, the S&P 500 is up 0.84% for November and the Russell 2000 is up 0.48%. For the year, the DJIA is up 4.98%, the S&P 500 is up 0.49%, and the Russell 2000 remains down 4.98%.

Performance of the major economic sectors continues to reflect the "muddling" aspect of the overall US economy. So far in November, Energy, Materials, and Utilities are the best performing sectors, but they were only moderately better than the bottom performers, which were Financials, Real Estate, and Consumer Discretionary. For the year, Utilities, Consumer Staples, and Health Care are the top three performing sectors while Financials, Materials, and Industrials are the bottom three. The Financial sector is nearly 10% worse in performance than the Materials sector and nearly 30% worse than the top performing Utilities sector. However, the difference in performance of the other sectors within the economy is not nearly as pronounced providing little gain by favoring most sectors over another.

Europe continues to struggle with the debt crisis and although some relief emerged late in the week, the MSCI EAFE is down 5.40% for November and down 14.14% for the year.

The Euro continued to pullback against the US dollar losing another one cent in November closing Friday at $1.375. The Euro has been a barometer of investor confidence in the European Union's efforts to deal with the debt crisis. As Greece and Italy pushed through austerity measures in their respective parliaments late this past week, the Euro strengthened relative to the US dollar.

Oil has led all commodities in November as the price of a barrel of West Texas Intermediate has gained $6.03 (6.47%) to close Friday at $99.33. As supplies drop and expectations that the global economy has not stalled completely, oil has managed to rebound nicely. Gold maintains its lead for the year with the price per ounce now up $365.10 (25.72%). On Friday, gold closed at $1784.80 as investors continue to seek security in this metal. Investors looking for safety are also opting to gold at the expense of the other traditional safe-haven investment, US Treasuries, because Treasury yields are at historical lows. The UBS Dow Jones Commodity Index, representing a broad basket of commodities, is down 0.37% for November and is down 8.29% for the year.

Bond markets have shown little change in November with all bond sectors generally within 1% on the upside and -1.5% on the downside. Extended duration US Treasuries posted slight gains to lead most bond sectors thus far in November while high yield and quality corporate bonds were the weakest. The 10-year US Treasury yield has fallen in the first two weeks of the month to close at 2.052% Friday compared to the 2.122% close on October 31st. The Barclay's Aggregate U.S. Bond Index closed Friday up 0.11% for the month and is now up 6.90% for the year.

A PEPTO-BISMOL WORLD

If the news cycle looked like a menu at your favorite restaurant it would feature such wonderful international dishes like gyros, moussaka, gnocci, ossobuco, and even a little coq au vin thrown in for good measure. I must confess that I love to eat the native dishes of Greece, Italy, and France individually and in moderation but not all together or at one sitting. Too much of a good thing can cause some serious indigestion. Not every day, not after every meal, but when you do get an upset stomach, it is definitely unpleasant experience. That's when I grab the Pepto to settle things down.

Investors have suffered from periodic bouts of indigestion recently as they attempt to digest the unending stream of news coming from all over Europe. The news has certainly been spicy. Governments collapsing, riots in the street, rumors that Greece may exit the Euro, and the Italian bond market failing have all been in the headlines recently. The change of government leadership in Greece and Italy has proven to soothe unsettled stomachs in investors for now, but for how long?

I will continue to reiterate what I have been saying for some time and that is the Europeans must find a way to reform the impediments to growth within the EU, especially Greece, Italy, Portugal, and Spain. The austerity budgets recently passed in Greece and Italy are clearly a step in the right direction and investors are correct to applaud these steps. But eventually, real growth must return to Europe. If the Europeans are unable or unwilling to fix themselves, the markets (particularly the bond markets) will force reform and in the end, you may well see increasing fiscal unification or look for a number of countries withdraw from the EU and the Euro. Either way it will be an unpleasant process, but the outcome will ultimately be better for everyone.

In the meantime, keep your bottle of Pepto handy.

LOOKING AHEAD

Although Europe will certainly be in the headlines next week, look for a lot of investor attention to shift to Washington, DC, and the so-called Super Committee. The Super Committee's deadline is Wednesday, November 23rd, and any agreement/compromise will be well received if such

agreements are substantive and bi-partisan. Failure to reach any agreement will leave investors disappointed and I will look to the bond markets to see just how serious the lack of compromise could potentially become. If the US Treasury interest rates rise sharply the bond markets will be sending the same signal that they have sent to Greece and Italy-you must get your fiscal house in order before we will lend you more money to fund your deficits. Clearly, the United States is not Greece or Spain today. We can, for example print money to pay our bills (the consequence of this is inflation), but the US must address the impediments to growth otherwise the outcome will essentially be the same as we have seen in Europe, only further out in the future.

I am also watching the geopolitical issues between Israel and Iran. The European debt crisis has dominated the headlines, but follow the stories coming from Iran and remain aware.

US stocks and Currencies are the top two rated major asset categories. Both pass the cash bogey check indicating current strength in both of these major asset categories. The Australian Dollar and Yen are currently favored on a relative strength basis. I generally hesitate buying currencies because of the volatility and the ability of governments to intervene and skew the economics of the trade. The Commodity major asset category is ranked third followed by Fixed Income, Cash, and finally International stocks.

Within US equities, mid capitalization growth stocks are the strongest on a relative strength basis. Equal-weighted indexes are preferred over capitalization-weighted indexes. I believe that high quality; large capitalization dividend paying stocks present a compelling story and appear to be showing strength as a defensive investment. Within sectors, Utilities and Consumer Staples are showing the best relative strength.

I continue to like gold and commodities in general. Gold for uncertainty and commodities as an inflation hedge.

Within the bond asset category, International Bonds and Inflation Protected Bonds remain favored.

There are a series of important economic reports scheduled for release this week. The Producer Price Index, Retail Sales, and the Empire Manufacturing Index will be out Tuesday morning before the markets open. Wednesday morning is the Consumer Price Index and Industrial Production report. Thursday morning is the Initial Jobless Claims report, Housing Starts, and the Philadelphia Fed Survey. Friday is the Conference Board's report on Leading Economic Indicators. As has been the case for some time now, there is little expectation that any of the numbers will be anything but a confirmation that the US economy is in a period of "muddled growth."

Several weeks ago, I suggested that patience would be an important attribute during these volatile times. I continue to stand by that view. US stocks have shown strength since early October and they continue to do so. The volatility of the markets will remain but that should not deter your willingness to own US stocks. I am not suggesting full investment into stocks right now, but I am moving back in selectively and patiently. I am not buying any international stocks at present but do like US stocks that have broad international reach.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. 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, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. 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. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

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Tuesday, November 1, 2011

Global markets reacted to the news from European leaders that they had reached a broad consensus on dealing with the debt crisis with a strong rally on Thursday and an October for the record books. The US showed signs that a second recession was not imminent (US 3rd Qtr GDP +2.5%), and perceived risk in the market shrank as the Chicago Board Options Exchange Volatility Index fell to below 30 for the first time in three months.

The Dow Jones Industrial Average (DJIA) had another strong week gaining 3.58% (422 points) last week while the S&P 500 gained 3.78% and the Russell 2000 added 6.82%. With just one trading day remaining in October, the month is poised to be one of the strongest in the past quarter century. As of market close on Friday the DJIA is up 12.07% for the month, the S&P 500 is up 13.58%, and the Russell 2000 has returned 18.14%. As welcomed as October's rally has been, the indexes remain relatively flat for the year. For 2011, the DJIA is up 1.20%, the S&P 500 is up 2.18% and the Russell 2000 is still down 2.89%.

Every major US economic sector was positive last week with the strongest performances turned in by the generally weakest sectors in 2011. Materials, Real Estate, Financials, and Energy were the best performing sectors while Consumer Staples, Utilities, Consumer Discretionary, and Telecom were the poorest. Looking at the inconsistent sector returns this year reveals unsettled traders moving in and out of defensive sectors depending on their perceptions of risk on a nearly daily basis. This "Risk On" and "Risk Off" nature of the markets is emerging as the one consistent theme for 2011. For the year Utilities, Consumer Staples, Health Care, and Energy are the top performing sectors with Financials, Materials, Telecom, and Industrials the worse.

Europe posted strong gains with the MSCI EAFE adding another 6.27% last week but remains down 5.88% for the year. Europe has been the best performing region in the world for October followed by the Americas, Africa, and the Pacific Region. All but the Pacific Region posted double-digit gains. For the year, the Americas is slightly negative but leading all other regions. Africa, weighed down by the Middle East, and the Pacific Region are the two weakest regions.

The Euro continued to rebound against the US Dollar. On Friday, the Euro closed at $1.415 marking its best close to the US Dollar since September 2nd. For the week, the Euro gained $0.026 (1.87%) and has rallied $0.075 (5.60%) against the US Dollar in October. The US Dollar has fallen steadily against most major currencies since October 4th as investors shifted away from the safe-haven US Dollar to riskier currencies.

The commodity rally remained in place last week as the US Dollar continued to weaken and expectations that the global economy would not dip into another recession (primarily because of US economic data). The Dow Jones UBS Commodity Index gained 4.09% last week and is up 7.67% for the month. West Texas Intermediate (WTI) oil gained $5.60 (6.41%) per barrel this past week to close Friday at $93.00. Gold gained $110.70 (6.77%) per ounce for a Friday close of $1746.80. Gold and precious metals lead all commodities in 2011. For gold investors this is good, but I am cautious about this trend. As I have said many times, gold is a hedge against uncertainty. If investors are concerned about the overall value of paper currencies, they buy gold. If they are confident in global leaders' ability to manage their debt and currencies, then the price of gold would be expected to pull back or at least pause. Investors are showing confidence in a growing global economy but hedging their bets on global leadership.

US Treasuries pulled back with interest rates rising for the fourth time in five weeks. Longer duration US Treasuries were the worst performing bond sector this past week while higher risk bonds such as preferreds, high yield, and inflation protection bonds-along with international bonds, were the best performers. The weakening US Dollar is helping international bonds. The 10-year interest rate on the 10-year US Treasury increased from 2.25% a week earlier to close Friday at 2.33%. The 30-year rate also increased from 3.24% to 3.38%. The Barclay's Aggregate US Bond Index gained 0.16% last week and remains up 6.68% for the year.

BUY ON THE RUMOR, SELL ON THE NEWS?

Much has been made of the progress by European leaders in their efforts to address the credit crisis in Greece and preventing a spillover into Italy. October so far has followed the old trader adage, "buy on the rumor, sell on the news," as stock investors have bought heavily into the current European agreement. The question is will they sell on the news?

I have cheered the recognition of European leaders that some default on Greek debt was inevitable, and the reported agreement to reduce the value of existing Greek bonds by 50% is clearly a step in the right direction. However, a lot of work remains towards resolving this debt crisis.

Let's look at one of the three pillars of the new framework agreed to by the European Union (EU) leadership-expansion of the European Financial Stability Fund (EFSF)-as an example of how much work still remains. The EU has currently pledged some €440 billion ($623 billion) to fund the EFSF, but most observers believe that this amount will be inadequate to deal with not only Greece, but also Portugal, and ultimately Italy. With Germany resisting more direct funding, the EU leadership has decided to use leverage to boost the value of the fund to upwards of €1.4 trillion ($1.98 trillion). Leverage would be achieved by the EU using the existing EFSF funds to guarantee the first 20% or more of any losses incurred by new bond investors if further debt restructurings are required. However, to push the value of the EFSF upwards, the additional €1 trillion ($1.4 trillion) must come from somewhere, and that is the potential sticking point. Europe is looking at China and possibly Japan for the additional funding, but China in particular is sending very cautious signals to Europe about any expected help. So an agreement to leverage is a far cry of having outside investors ready and willing to provide the funding to achieve that leverage.

Stock markets are certainly an indication of investor confidence surrounding the efforts of the EU to stuff the bad Greek debt Genie back into its bottle, but I believe the bond markets will provide the true verdict of the success or failure of the EU. After all, the bond market has forced Europe into this crisis and bond investors will ultimately determine the fate of the debtor countries. The Italians are the biggest player by far in the European bond market with over €1.9 trillion ($2.7 trillion) of outstanding debt. The yield on the Italian 10-year Treasury bond increased last week to just over 6% indicating bond investors are growing less confident in the Italian government. A successful EU solution would reflect falling interest rates in Italy, not rising.

LOOKING AHEAD

Markets in 2011 have been subject to heightened volatility in both directions. This behavior has led to inconsistent and unimpressive results, but what is becoming more predictable is what happens when the markets enter into either a Risk On or a Risk Off day. I believe for now this trend will continue. I will try and explain what this means and why it has occurred.

On days when Risk is On we generally see the following:

Stocks UP, US Bonds DOWN, International Bonds UP, Commodities UP, US Dollar DOWN

On days when Risk is Off we generally see the opposite:

Stocks DOWN, US Bonds UP, International Bonds DOWN, Commodities DOWN, US Dollar UP

The news from Europe has been dictating the Risk On or Risk Off sentiment in the markets. The market rally over the past month has been driven by speculation that the Europeans have finally realized that Greek debt must default in some fashion and that EU leadership will be forced to find a broad solution to stay one-step ahead of the bond markets. If the Europeans are successful in this difficult dance, there will be short-term comfort in the global markets followed by structural reforms designed to improve economic growth. If they do not, then we will see a full Risk Off scenario develop. The Europeans have their backs against the wall. They must act and I believe they will, but will their actions be enough to satisfy the bond markets? Watch the bond markets for answers.

Over the longer-term, I remain very cautious because I believe the real issue facing Europe is that of overspending and low- to no-growth. Failure to achieve a long-term solution will stress the Euro currency to

the point of possible dissolution of the currency in a worst-case scenario or the return to domestic currencies by some EU currency member countries in a less lethal scenario. To illustrate my point let me use a simple analogy. Picture 17 guys in a row boat each representing a country sharing the Euro currency...a couple of them, most notably the German rower, is working feverishly. Sweat is pouring down his face and his efforts are responsible for the boat moving forward. Somewhere else in the boat is the Greek rower. He is kicked back sipping on a glass of chilled ouzo watching the German row. Eventually the German is going to get tired of doing all the work and the Greek will put down his ouzo and start rowing or the German will toss him overboard to lighten the load. So this is where we are today, watching and wondering how much longer the German rower will tolerate the ouzo-sipping Greek. Oh, and the Italian and Spanish rowers are watching all of this very closely!

For now I believe that exposure to equities can be increased, but still underweighted from full allocations. I believe high yield bonds offer a good way to play the Risk On trade with less (but still present) potential downside risk if the Risk Off scenario returns.

US stocks have returned as the top Asset Category of the five I follow. Currencies are second with Commodities third, Bonds fourth, and International stocks last.

In the US stock Asset Category, mid-capitalization growth stocks are favored. On a relative strength basis, Consumer Staples, Consumer Discretionary, and Utilities are the strongest sectors while Financials, Industrials, and Materials remain the weakest.

Within the Bond Asset Category, International bonds and Inflation Protection bonds are favored. Higher risk bonds such as preferreds and high-yield remain attractive options especially as stock markets rally.

I continue to like gold. Investors see gold as an important hedge against paper currencies that may be exploited by central banks to help get their debt problems under control. There is no indication that uncertainty will go away in the short-term.

Among the key economic data being reported next week is the Institute for Supply Management (ISM) survey (Tuesday), the Jobless Claims report (Thursday), and the October Unemployment report (Friday). Consensus data on each of these reports suggest little change to the current slow-growth economic environment.

I will not be writing a Weekly Update next week due to business-related commitment next weekend.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. 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, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. 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. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

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Thursday, October 20, 2011

Amidst headlines proclaiming progress is being made in Europe's efforts to fix the Greece problem, US and global markets surged this past week. US retail sales figures released on Friday also gave investors hope that the likelihood of a double dip recession has receded for now.

The Dow Jones Industrial Average (DJIA) had its second best week of 2011 gaining 4.88% (541 points) last week while the S&P 500 gained 5.98% and the Russell 2000 rebounded with an 8.57% increase. While Thursday's initial jobless claims report remained above 400,000 giving little hope that the jobs picture would improve this year, retail sales grew by 1.1% in September marking the strongest gain in 7 months. For the year, the DJIA is now back in positive territory gaining 0.58% while the S&P 500 remains down 2.63% and the Russell 2000 is off 9.08%.

Like the markets, the major US economic sectors have failed to find any consistency. Early year leaders Energy, Information Technology, and Materials returned as the top performers for the week, while the current year's leaders Consumer Staples, Utilities, and Health Care were the bottom three performers this past week. All but the bottom three sectors outperformed the DJIA for the week and all eleven sectors were positive. For the year, Consumer Staples, Utilities, Health Care, Information Technology, and Consumer Discretionary are all positive and outperforming the DJIA. Financials, Materials, and Industrials remain firmly at the bottom.

The MSCI EAFE was positive for the third consecutive week gaining 4.49% and is now up 9.90% since the September 23rd close. Investors are clearly buoyed by developments in Europe and hope that political leaders are making progress in fixing the debt crisis. As I noted last week, I support efforts to improve European bank capitalization, but there is a long way to go before the all clear signal can be given.

Confidence in the Euro continues to gain momentum as the Euro rallied last week picking nearly 5 cents on the US dollar closing Friday at $1.387 marking its highest close against the US dollar since September 15th. The US dollar has weakened steadily against the Euro and other currencies since early this month as fears about a Lehman Brothers-esque style collapse in Europe subsides. This reversal of the US dollar has corresponded with an increasing trend in commodity prices and US Treasury yields.

Commodities in general have been in a positive trend after the Dow Jones UBS Commodity Index bottomed on October 4th rising 7.3% from that date with 4.5% of the increase coming this past week. The weakness in the US dollar has been a factor in rising commodity prices, but the corresponding expectations of improving global markets and thus increasing demand is behind the price moves. West Texas Intermediate (WTI) oil gained $3.44 (4.15%) this past week to close Friday at $86.42 per barrel. Gold gained $35.20 (2.15%) per ounce for a Friday close at $1671.00. Following the muddled trend found in the major US economic sectors area, there has been no sector other than oil, which has clearly separated itself as a leader among other commodity sectors recently. For the year, the Dow Jones UBS Commodity Index is down 8.73%. Gold and Precious Metals are the clear leaders so far in 2011 with Natural Gas and Base or Industrial Metals (i.e. Nickel, Copper, Lead) the laggards.

Bond markets pulled back for the third consecutive week as US Treasury interest rates continued to rise pushing down bond valuations. The 10-year interest rate increased from 2.08% a week earlier to close Friday at 2.25%. The 30-year rate also increased from 3.02% to 3.24%. High yield, Emerging market sovereign debt, and preferred bonds were the best performing sectors within the fixed-income asset category while extended maturity bonds (greater than 20 years) were the worst performers again. The Barclay's Aggregate US Bond Index closed down 0.19% last week but remains up 5.81% for the year. Investors are moving money away from the safe-haven of US Treasuries and into more risky bond sectors in search of better yields.

FAILURE IS NOT AN OPTION

A very guarded sense of optimism emerged from this past weekend's meeting of the G-20 Finance Ministers in Paris. The Germans and French stated that they were making progress towards their plan to deal with Greece and get the debt crisis under control. According to the Wall Street Journal, the plan has three legs: a new bailout for Greece, bank recapitalization, and an increase in the European Financial Stability Fund (EFSF). The Europeans will be meeting on October 23rd to finalize the details of the plan which is expected to be presented to the next meeting of the G-20 on November 3rd in Cannes, France. Markets have moved up sharply in response to this renewed optimism.

However, there are still many details to work out in the next week. The Financial Times reported late Friday that the representative of the largest private owners group of Greek debt, the Institute of International Finance (IIF), stated that his organization was unwilling to take a larger loss than the previously negotiated loss of 21% (German Chancellor Merkel is looking for a voluntary loss of between 50% and 60%). You may question why the IIF should have any say in how much of a loss they are willing to take, but the answer is simple and important: if the current private bond owners agree to a negotiated settlement, it would not constitute a technical default on the bonds. If a technical default were to occur it would trigger insurance policies, payouts, and a massive loss of confidence in European credit markets and immediately create problems for Spain and Italy. The markets would be dictating outcomes, not politicians and central bankers.

Another detail to be worked out is how banks are to be recapitalized. The Germans want each country to deal with their own banks. The French want to use ESFS funds because of concerns that increased French borrowing would jeopardize their highly coveted AAA debt rating.

I would fully expect negotiations to grow increasingly contentious as the pressure to meet very public deadlines approaches, and because this may very well be the last chance European leaders have to prove to the private markets that they can come up with comprehensive policies to deal with Greece. I would sum up the situation with a quote from one of my all-time favorite movies, Apollo 13, "Failure is NOT an option."

LOOKING AHEAD

The rally in markets here and abroad has caused several key indicators I follow to change to the positive. First, the New York Stock Exchange Bullish Percent (NYSEBP) reversed from a column of O's (selling in control) to a column of X's (buying in control), and the NYSEBP has increased from a low of 17.47% on October 4th to a close on Friday of 40.00% posting a weekly gain of nearly 17%. Second, the US stock and International stock asset categories now pass the Cash bogey check indicating that the relative strength of US and International stocks is improving. US stocks and International Stocks are still in third and last place among my five major asset classes, so I am not suggesting a full move back into either asset class, but I will be looking to selectively increase stock exposure this week primarily in US stocks.

Currencies and Commodities still remain as the top two major asset categories on a relative strength basis. The Chinese Yuan and Japanese Yen are favored in the Currency category while the agriculture and precious metals sectors are favored within the Commodity category.

In the US stock category, mid-capitalization growth stocks are favored. On a relative strength basis, Consumer Staples, Consumer Discretionary, and Utilities are the strongest sectors while Financials, Industrials, and Materials remain the weakest.

US bonds continue to come under pressure as interest rates continue rising from their historically low yields. The higher risk bonds (high yield, preferreds, and bank loans) have rallied along with the stock markets while longer maturity bonds have seen significant pullback. The International bond sector extended its rally last week on expectations that Europe is getting its act together on the Greece debt crisis. I do not recommend selling bond holdings and favor inflation protected bonds and international bonds at this time.

I continue to like gold. Investors see gold as an important hedge against paper currencies that may be exploited by central banks to help get their debt problems under control.

Among the key economic data being reported next week is the Industrial Production (Monday, the Producer Price Index (Tuesday), the Consumer Price Index and Housing Starts (Wednesday), and Jobless Claims and Existing Home Sales (Thursday). As has been the case over the past several months, investors are watching the data closely for signs of economic direction and strength.

Attention will continue to focus on Europe and the progress of political leaders to shape economic policy rather than losing control to the bond markets. Spanish and Italian bond yields will be an important indicator of investor views of the success or failure of politicians. Time is running out. The moment for action is now.

The NYCE US Dollar Index is a measure that calculates the value of the US dollar through a basket of six currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swedish Krona, and the Swiss franc. The Euro is the predominant currency making up about 57% of the basket.

Currencies and futures generallyare volatile and are not suitable for all investors. Investment in foreign exchange related products is subject to many factors that contribute to or increase volatility, such as national debt levels and trade deficits, changes in domestic and foreign interest rates, and investors' expectations concerning interest rates, currency exchange rates and global or regional political, economic or fi nancial events and situations.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. 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, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. 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. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

This e-mail is an advertisement and you may opt out of receiving further e-mails. To opt out, please respond to this e-mail with 'Opt Out' in the subject field.