Monday, January 24, 2011

US stock markets finished the week mixed as the Dow Jones Industrial Average gained 84 points (+0.72%) to close at 11,872 while the S&P 500 lost 10 points (-0.76%) finishing at 1283, and the Russell 2000 lost 4.26%. The drop in the broader S&P 500 index and the small caps (Russell 2000 Index) marks a break in the recent general outperformance by mid and small cap stocks over larger cap stocks. There is no news that would point to a specific cause of these setbacks last week other than to say that the markets maybe taking a pause after very strong gains. Since the end of the 3rd quarter, 2010, and the close of markets on January 14th, the DJIA was up 9.26%, the S&P 500 up 13.32%, and the Russell 2000 up 19.44%. For the year, the DJIA is now up 2.54%, the S&P 500 is up 2.04%, and the Russell 2000 is down 1.34%.

The top three broad economic sectors last week were Utilities, Consumer Staples, and Real Estate while Materials, Information Technology, and Telecom were the bottom three performers. Of the 11 broad economic sectors I follow, only Utilities and Consumer Staples were positive on an absolute return basis. On a relative strength basis, Real Estate, Consumer Discretionary, and Information Technology continue to lead among the sectors.

The MSCI (EAFE) World Index lost a slight 0.02% for the week reflecting strength in developed Europe while emerging markets continued recent weakness. Last year's weakest countries, Spain and Italy are the best performers so far in 2011 while Indonesia, South Africa, and India have all pulled back significantly. Concerns over a weak US dollar are driving inflation worries in emerging markets and countries may be forced to tighten local monetary policy to temper inflationary concerns dampening economic growth. China has raised lending reserves and the Central Bank of Brazil just raised their key interest rate by 0.50% to 11.25%. Rising food prices in particular are hurting many emerging markets right now. I will be evaluating emerging market positions closely in the coming weeks.

The Euro continued its climb against the US dollar as European debt fears continue to subside. The Euro closed Friday in New York at $1.3615 up another $0.025 pushing the Euro to its highest levels since late October of last year. Part of the recent push has been the added buying by investors who had "shorted" the Euro. Investors sold, or "shorted" the Euro on expectations that the currency would continue to fall. In the face of growing strength, these investors must now buy Euros to close out their positions adding additional momentum behind the Euro's gains.

Commodities were mixed last week. Gold added to the previous week's losses posting a drop of $19.90 (-1.46%) to close late Friday at $1341.00. For the year, gold is now down 5.54%. Gold's relationship with the Euro is telling as the currency gains strength (considered a signal of investors' willingness to assume greater risk); gold and other precious metals lose strength. Oil also pulled back on news of strong supply inventories. Oil (West Texas Intermediate) lost $2.55 (-2.78%) from the previous week's close of $91.22. Food and textile commodities continued to move higher creating concerns over future inflation in many goods.

The 10-year treasury yield rose last week closing Friday at 3.4081% up from the previous week's close of 3.3328%. The Federal Reserve helped stem further increases in the yields by making Treasury bond purchases late in the week. The markets will be watching the tenor of remarks coming from this week's Fed's meeting (the first in 2011), and investors will also be watching how the sale of $99 billion in new Treasuries goes. Corporations issued $10 billion of new bonds adding to supplies in the bond markets, and reports by Moody's and Standard and Poors indicating that the US's AAA bond rating may be at risk if Washington does not get spending under control will continue to weigh on investor's minds.

STOCKS IN FOCUS

We are in the midst of earnings season where US companies are reporting their 4th quarter, 2010, earnings and making announcements of their views regarding 2011. So far the reports have been coming in pretty well and I would expect this to continue. GE had great numbers and helped propel the DJIA last week, but the real news came from Apple and Google announcing major management shakeups. Apple's Steve Jobs has been forced to take another medical leave of absence while Google announced the departure of its current CEO. Both moves raised investor fears and contributed to the drop in both stocks, especially Apple. Apple is the single most widely held stock among institutional investors while Google is the seventh.

THE NEW YORK STOCK EXCHANGE BULLISH PERCENT

The first key indicator I look at on a day-to-day basis is the New York Stock Exchange Bullish Percent (NYSEBP). The NYSEBP is a statistic that gives insight into whether the US stock market is currently gaining strength, losing strength, and how much risk is built in to the market. I have mentioned the NYSEBP before, but I will spend a little more time discussing just how this indicator works.

The NYSEBP looks at the point and figure chart of every stock on the New York Stock Exchange and decides if it is in a buy mode or sell mode (for further explanation of point and figure charting you can find good explanations online or in Tom Dorsey's book, Point & Figure Charting, Third Edition). All buys are added up and divided by the total number of stocks to arrive at a percentage. If the percentage is below 30% the market is considered oversold, and if the percentage is over 70% the market is considered overbought. Additionally, if the momentum of that percentage is upwards, then the market is considered to be on offense and more people are buying stocks than selling. Likewise, if the NYSEBP is losing momentum, than more sellers are in the market and caution should be exercised. The old adage of "a rising tide lifts all boats," describes the value of the NYSEBP. If markets are rising, it is generally possible to make money in stocks, and if the markets are falling, it becomes much more difficult.

Presently, the NYSEBP is at 79.36 with positive momentum. The NYSEBP has been over 70% since October, 18, 2010. The average time the NYSEBP has been over 70% since 1958 is 95 days. We are now at 97 days. While the NYSEBP cannot predict when the indicator will pull back (the longest period was 285 days from June 4, 2003 until March 16, 2004); it can certainly tell us that there is greater risk of a market pause or correction today, and that the tide is certainly high. I will be watching very closely for any reversal in momentum in the NYSEBP and will pass that information on when I do see that.

Looking Ahead

Both the small and mid capitalization segments of the markets were down last week. Their point and figure charts turned to negative momentum and will require further review. Emerging market momentum has also turned negative. As I noted earlier, it not especially surprising after each of these market segments have enjoyed great strength since the fall of 2010; however, the caution lights are flashing.

Bonds continue to be flat and worries of inflation are weighing on bond investors. Heavy supply of bonds of all types may also contribute to weakness in bond prices (raising yields). I believe that for 2011 bond investors can expect more traditional bond-like returns and not the double digit gains seen since we came out of the financial crisis of 2008.

Commodities remain volatile and gold is reaching its long-term support at $1340. If gold breaks below $1340, positions will need to be reevaluated. Oil has pulled back to the middle of its 10-week trading range and has support at $85 per barrel. Other commodities are showing strong price appreciation and are contributing to the underlying inflation worries spreading throughout the world. The weakening US dollar is also helping to raise commodity prices and stoking inflation fears abroad.

The less sensitive indicators found in the Dynamic Asset Level Indicators (DALI) still show US and International stocks to be favored, Emerging Markets favored over Developed, equal-weighted indexes favored over capitalization-weighted, mid and small cap over large cap, and growth over value. Because the DALI is less sensitive than the markets in general, changes, when they occur, are significant.

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

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

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

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

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

Sincerely,

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

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

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

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

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

Friday, January 21, 2011

Stock markets at home and abroad continued to climb higher this past week. Confidence was renewed in Europe as Portugal, Italy, and Spain all had successful bond offerings, gold pulled back as a result, and the US markets shrugged off disappointing news on the jobs and housing fronts.

The Dow Jones Industrial Average (DJIA) gained 113 points (+0.96%) to close Friday at 11,787. The S&P 500 Index gained 22 points (+1.71%) to close the week at 1293. Small capitalization stocks represented by the Russell 2000 Index gained 2.51% for the week. For the year the DJIA is up 1.8%, the S&P 500 is up 2.8%, and the Russell 2000 is up 3.0%.

The top three broad economic sectors last week were Information Technology, Financials and Energy while Telecom, Utilities, and Health Care were at the bottom. As the year gets underway I am seeing a short-term move towards the Technology and Energy sectors but not enough to make a change in the relative strength rankings.

The MSCI (EAFE) World Index gained 2.7% to lead all major indexes. The European debt crisis was seen as subsiding in the wake of the reasonably strong auctions among Portugal, Italy and Spain. Additionally, the President of the European Central Bank (ECB), Jean-Claude Trichet, stated that the ECB would take action against inflation should it be necessary encouraging markets. The Euro rebounded as well last week closing at $1.3376 compared to the previous week's close of $1.3369. This number is slightly deceiving because the Euro fell below $1.30 early in the week. The European Finance Ministers will be meeting in Brussels on Monday and Tuesday to discuss the size and rules surrounding the new European Financial Stability Facility (EFSF), and the bond markets will be watching these discussions closely. In Asia, China announced that it was increasing the debt reserve requirements of banks there yet again late Friday. Requiring another 0.5% of bank reserves to the current 19% will have the effect of pulling cash out of the Chinese economy in an effort to help stem inflation in the country. Asia and Chinese investments have typically pulled back the day following the announcement and I would anticipate the same on Monday.

Gold fell another $7.60 per ounce to close last week at $1360.90. For the year, gold has lost 4.1%. The news from Europe was largely responsible for the continued downward move as investors regain confidence of the Euro. Oil gained $3.63 (4.1%) per barrel last week as investors continue to bet on growing economic expansion both in the United States and elsewhere. The Alaska oil pipeline was reopened during the week after damage at a pumping station closed operations. The pumping station was closed over the weekend for additional repairs, but does not appear to threaten further shipments of crude. Most other commodity prices generally rose following a trend that has been in place for the past few months. Worries are mounting over the increase in clothing, fuel, and food prices as we move into the year.

The 10-year treasury ended the week at 3.3328% declining slightly from the previous week's close of 3.3256% reflecting a slightly improving trend in bonds. The broader bond market, as measured by the Barclays Aggregate Bond Index, gained 0.13%. There was little news to sway the bond markets one way or the other.

TOP STORIES

The successful sale of European bonds was certainly good news last week. I will confess, however, that I remain very cautious about Europe. The meeting this week in Brussels will certainly add further clarity to the direction Euro Zone countries, especially Germany, will move in the future as the ministers wrestle with new EFSF. Germany is a reluctant partner but must find some way to hold all of this together. If last year is any guide, this issue can turn quickly so be alert.

Most domestic news was placed on the back burner last week as the nation mourned the lost souls from the terrible shooting in Tucson. However, some key economic news was not good. First time jobless claims rose 35,000 to 445,000. Consensus expectation was for a number of 410,000. While the trend may be showing a slight improvement, the numbers are nowhere near good enough to put Americans back to work and move the unemployment rate below 9%. The news on housing was not any better. According to Bloomberg, US foreclosures may jump 20% in 2011. The report went on to say that approximately 3 million homes have been repossessed since the boom ended in 2006 and that another 5 million homes may yet be repossessed by 2013. Home prices on average have also fallen around 33% in 20 cities based upon the S&P/Case-Shiller Index. These two factors will continue to weigh on the economy in 2011.

A natural question would be, "Paul, if these two important parts of our economy have a negative outlook, how can the stock market continue to rise?" The answer is simple: supply and demand; but based upon very complex actions within the economy. Those of you who know me well understand that I harp on the fact that all economics can be boiled down to the concept of supply and demand. In this case, the stock market has more buyers than sellers. The question is where is the cash coming from? I believe a lot of it is coming from Mr. Bernanke and the Federal Reserve. The Fed is pumping billions of dollars into the economy through the quantitative easing program. Additionally, the extension of the Bush-era tax cuts and the 2% reduction of the social security tax will begin to adding US dollars into the economy. Also, as the stock market continues to rise, many smaller investors will be compelled to start selling their bonds to buy stocks (this may have contributed to the drop in bond prices in the 4th quarter of 2010). Wherever the cash is coming from, the bottom line is that it is moving to the stock markets.

I will continue this discussion next week about whether or not this trend can continue and for how long.

Looking Ahead

This is earnings season so there will be plenty of news about how some of the biggest companies fared the last three months of 2010. Additionally, investors will hang on every word from the reporting companies to get some insight on how they believe 2011 will shape up. The net result can be market can be volatility so don't be surprised by larger movements in the markets.

The general relationship of stocks, bonds, and cash has not changed. Mid and small capitalization stocks are preferred over large, growth is favored over value, and US and International stocks are preferred over Commodities, Bonds, and Currencies. Commodities, less precious metals, remain strong for now. While the best performing countries abroad last week came from developed Europe, emerging markets continue to be favored over developed. Finally, bonds have stopped falling for now so I am not suggesting selling bonds if they are an important part of your risk and income allocations.

I do believe that success in this market will require constant scrutiny by investors so open your statements, follow your investments, and call me if you have any questions.

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

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

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. 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, January 11, 2011

US equity markets completed the first full week of 2011 higher and marks the sixth consecutive week of gains by the major US markets. The Dow Jones Industrial Average (DJIA) gained 97 points (+0.84%) closing the week at 11,674.76. The S&P 500 closed on Friday at 1271.50 adding 14 points (+1.10%). Much is made about looking at the first week of the year as a predictor for the full year and I will share some of the data on this phenomenon below.

The top three broad economic sectors last week were Information Technology, Health Care, and Financials while Consumer Staples, Real Estate, and Materials were all negative for the week. On an absolute relative strength basis, Real Estate, Consumer Discretionary, and Information Technology are the three strongest sectors while Utilities, Health Care, and Financials are the weakest.

The MSCI (EAFE) World Index lost 0.83% for the week on renewed worries over the European debt markets. Developed markets in general posted greater losses than emerging markets maintaining an overall trend that has been in place for the past year. The Far East and Middle East were, in general, the best performing areas of the world while developed Europe and India were the worst performing.

The Euro closed at $1.2916 falling $0.045 (-3.4%) from $1.3369 putting the Euro at its lowest point against the US dollar in the past four months. Europe cannot shrug off the concerns over the on-going debt problems with attention focusing this week on Portugal and Spain.

Gold fell $51.20 (-3.6%) per ounce to close last week at $1368.50 on expectations that the US and global economies were strengthening and investors were less concerned about risk and uncertainty. Oil also fell 3.5% following on the same reasoning. Both of these (and other) commodities are volatile and will trade widely on small changes in perceptions of macroeconomic issues. The gaining technical strength of commodities in general, however, is a good reason to consider including commodities in your portfolios.

The 10-year treasury closed the week at 3.3256% up slightly from the year-end close of 3.2877%. Treasuries and fixed-income in general reflect the same macro trend as commodities as investors are selling bonds in favor of more risky investments following the consensus that equities will outperform bonds in 2011. The Barclays Aggregate Bond Index gained 0.02% for the week giving indicating that the bond market in general was flat last week.

THE JANUARY EFFECT

Stock investors are always looking for "rules of thumb" or an "old wives tale" to help give them some indication of what the stock market might do going ahead. Last week I discussed the general consensus of the pundits and their predictions for 2011 and this week I will follow that up with a brief discussion of the January Effect. The January Effect has several versions, but I will focus on the one that says, "As the First Five Days of January Goes, So Goes January, and So Goes the Year."

According to The Stock Trader's Almanac, the last 38 up "First Five Days" periods were followed by full-year gains 33 times, for an 86.84% accuracy ratio; and the average gain for these 38 years is just under +14%. Of the five years that didn't "work," four related to war, and one (1994) produced a flat year. The year 2002 was the last one that failed to be properly predictive, as January started the year up +1.1%, but ended nastily with a loss of -23.4%. For those first five days of January that start off in negative territory, which have been 23 in all, they have been followed with 12 up years and 11 down years. As a sidebar, the last two years have been winners, in that the first five days showed a gain, as did the entire year.

In pre-presidential election years (of which we are in now), this indicator has a stellar record. In the last 15 pre-presidential election years, twelve full years followed the direction of the "First Five Days." Realize that the January Barometer (the direction for the whole month), has an even better track record, with 14 of the last 15 full years having followed January's direction.

So we will see what happens in 2011.

SHOULD YOU SELL YOUR BONDS?

Some of you may be wondering what is going on with US bonds. The real answer is not much. Bonds are not automatically going to go up every week, month, or year; however, they typically have less volatility (price fluctuations) than equities or commodities. Bonds are held in portfolios because investors desire a stream of income and to help dampen the effects of stock market moves. This past quarter we saw bonds, as measured by the Barclays Aggregate Bond Index, lose value (-1.4%) for the first time in eight quarters (Q3, 2008). So investors who have become accustomed to a steadily rising portfolio of bonds have seen their first setback since 2008.

In general terms, investors tend to move to bonds (or increase their allocations) when they are nervous about the stock market and want to protect their principal. This has clearly been in place for the past couple of years when inflows to bond funds has significantly outpaced stock funds. The Federal Reserve has helped this recent trend by keeping a lid on interest rates (buying bonds in the open markets) and pushing bond valuations higher (price of bonds moves inversely to interest rates). As I pointed out last week, investors are feeling more confident that stocks may outperform bonds in 2011, so bonds are being sold to raise cash to move into the stock markets pushing bonds down.

So to answer the question of selling your bonds, you must ask yourself why you own the bonds. If it was only for protection and you desire more stock-like returns, then you may want to consider moving a greater portion of your bonds into the stock market. If you are holding bonds to preserve your capital and use the interest from your bonds as income, then you probably do not want to make any changes at this time.

One final point. Not all bonds are alike. There are many different types of bonds of which risks will vary. So pay attention to the types of bonds you own.

Looking Ahead

The resurgence of debt fears in Europe is having an impact on global markets. This Wednesday the Portuguese government will offer between €750 million ($971 million) to €1.25 billion ($1.62 billion) of new bonds for sale. How the markets react to this auction will say a great deal about how serious investors perceive Portugal's problems to be. While the Portuguese are emphatic that they do not need aid, time will tell. The Euro remains under pressure for now which may negatively impact developed European stocks.

A reported leak in a pump station on the Alaska pipeline will cause supply disruptions of as much as 95% coming through the pipeline for an undetermined time. While individual oil companies may suffer, I would anticipate an increase in oil prices until repairs are made.

Mid and small capitalization stocks are preferred over large, growth is favored over value, US and International stocks are preferred over Commodities, Bonds, and Currencies. Commodities are showing growing strength and should be considered for portfolios. Bonds are holding their own, so if you own bonds for income or risk reduction, do not make adjustments to your portfolios at this time.

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

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

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

Sincerely,

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

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

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

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

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

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

Monday, January 3, 2011

Happy 2011!

US equity markets closed the year with a strong December and a good year overall. The Dow Jones Industrial Average (DJIA) ended 2010 at 11,578.72 for a gain of 1151 points (+11.03%) with 487 of those points coming in the month of December alone. The S&P 500 had similar gains closing the year up 143 points at 1257.84 (+12.80%). December's gain of 77 points accounted for half of the S&P 500's gains for the year.

The top three broad economic sectors on an absolute return basis (not accounting for dividends) were Consumer Discretionary, Industrials, and Real Estate while Utilities, Health Care and Consumer Staples showed the smallest gains. Going into 2011 the strongest three sectors on a relative strength basis are Real Estate, Consumer Discretionary, and Materials. The weakest are Utilities, Health Care, and Financials; however, Financials and Health Care are showing some recent improvement among the sectors on a relative strength basis.

The MSCI (EAFE) World Index gained 8.02% for the year and 4.90% in December. International markets have recovered as European markets gained strength as yet another round of debt worries were set aside by investors. For the year, Indonesia, Thailand, and Chile were the top performers of the countries I follow. Not surprising, Spain, Italy, and France underperformed. China posted very pedestrian turns in 2010 as concerns mounted over governmental tightening and inflation worries.

The Euro closed at $1.3369 falling $0.95 (-6.61%) against the US dollar in 2010. The Euro was under stress most of the year as problems surfaced in Greece, Ireland, Portugal, Italy and Spain over sovereign (government) debt sending investors into the US dollar for safety. Over the New Year's holiday weekend the state heads of France (Sarkozy) and Germany (Merkel) publicly pronounced their full support of the Euro and tied their respective country's future to the success of the Euro. As I noted in recent updates, the Germans and other strong European countries must preserve the Euro for their own self-interests so I am not surprised by these endorsements.

Commodities posted strong gains across the board. Gold gained 29.7% closing the year at $1421.40 per troy ounce over uncertainties surrounding paper currencies and inflation worries. Oil ended the year at $91.22 per barrel and OPEC announced earlier in December that they would not increase production and were comfortable with $100 per barrel oil prices. While still not favored over US and International stocks on a relative strength basis, commodities have made a very strong move in the last six months.

The 10-year treasury finished the year at 3.2877% down from 2009's close of 3.835% allowing US treasuries to post solid gains in 2010. The 10-year US treasury yield bottomed on October 6th at 2.393% and climbed steadily until December 15th peaking at 3.517% before staging a rally the last two weeks of the year. The broad-based Barclays Aggregate Bond Index gained 6.53% for the year as all bond categories posted solid gains despite some year-end weakness. US high yield and emerging market bonds posted the best gains for the year while municipal bonds posted the smallest.

GOING INTO 2011

One of my favorite pastimes over the holiday season is reading all of the prognostications for the upcoming year. This year was no different. The airways and internet is inundated with countless pundits making their calls for 2011 and I have said many times that I do not make predictions because it is guesswork at best. I will share with you some general trends that I have read in case you are curious. Then consensus is that 2011 will be another solid year for the markets (low double digit gains much like this year) with US markets out performing international markets. Stocks will out perform bonds. Unemployment will improve but remain stubbornly high, the housing market could take another dip, commodities will continue to do well, and the small investor will return to buying stocks.

Prognostications are interesting, but I will continue to rely on relative strength analysis to direct my investment recommendations. As you know I have said consistently in 2010 that small and mid-capitalization stocks were outperforming and the Russell 2000 index (a small cap index) was up 26% compared to the DJIA which was up 11%. I have also consistently been saying that equal-weighted indexes were preferred over capitalization-weighted indexes. In 2010 the S&P 500 equalweighted index was up 19.8% compared to the S&P 500 cap-weighted index which was up 12.8%. So going into 2011 I will focus on what my technical analysis is telling me and that is:

· Small and mid-capitalization stocks are preferred over large-cap. · Growth is preferred over value investing. · Equal-weighted indexes are preferred over capitalizationweighted indexes. · US and International stocks are preferred over Bonds, Currencies, Commodities, and Cash. Commodities, however, are making a strong positive move and certainly be considered for portfolios if not already included. · Emerging markets are preferred over developed markets · Intermediate-term corporate bonds and emerging market bonds are preferred among bonds. · Real Estate, Consumer Discretionary, and Materials are the favored broad sectors.

Looking Ahead

I have no doubt that 2011 will be full of twists and turns and the unexpected. We live in interesting times, but I will let the pundits try and figure out where we will end 2011. While I will not make predictions, I will continue to make my recommendations on what is actually taking place. Relative strength analysis is not fool proof and I am the first to point out weaknesses such as when the markets were range-bound earlier in the year. But once trends take hold, relative strength analysis makes sure the strongest opportunities are identified and where investment decisions can be directed. I will continue to strive to provide you with up-to-date analysis of current economic news and provide you with sensible commentary.

I trust each of you had a wonderful holiday season and that you had a chance to share the season with family and friends. Stacy, Lisa, and our families were treated to the third greatest snowfall in Virginia Beach history and a very rare white Christmas. We came away with many adventures and stories. Travel was treacherous since the primary means of snow removal in Virginia Beach is sunshine and 33 degrees.

All of us at NTrust Wealth Management wish each of you a healthy and prosperous 2011.

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

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

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

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

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

Sincerely,

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

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

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

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

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

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