Monday, March 28, 2011

Major markets both here and abroad had their best weekly performance in 2011. While the range of major issues facing investors has not changed, investor appetite for risk returned.

The Dow Jones Industrial Average (DJIA) gained 362 points (3.06%) to close at 12,221 and the S&P 500 added 35 points (2.7%) to close at 1314. These moves have left the markets down slightly so far for the month of March, but for the year the DJIA is up 5.56% and the S&P 500 is up 4.47%. For the week, the Russell 2000 gained 29 points (3.67%) and for the year is up 5.13%.

Every broad economic sector in the US saw gains last week except for Real Estate which was down slightly. Information Technology, Materials, and Energy were the best performing sectors while Real Estate, Financials, and Utilities were the worst. As a sub-sector, banking continues to lag as bankers and investors try to understand the ramifications stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act Bill (referred to as simply Dodd-Frank) will have on the industry. The emergence of the Consumer Protection Agency and perceived roll in trying to negotiate a $20 billion concession from lenders to give to underwater mortgage borrowers is adding further uncertainty to this sector.

The MSCI (EAFE) World Index gained 3.41% for the week and is now up 2.33% for the year. Japan's Nikkei Stock Index continued to rebound gaining 3.58% last week, however, for the year this important Asian index is down 10.0%. Emerging markets in general were the strongest performers of the week of all key asset classes, but still remains near the bottom for the year. Europe both developed and emerging remains the strongest performers so far in 2011.

The Euro has pulled back from its recent highs against the US dollar losing just over a penny to close at $1.4081. The news coming from Europe this past week was again mostly negative (I will discuss in greater detail in the next section), but the European Central Bank's (ECB) continued support of earlier comments about raising interest rates in the face of growing inflation has held the Euro's strength against the US dollar.

Commodities, especially oil, continued to show strength with broad commodity indexes posting modest gains for the week and remains one of the strongest asset classes in 2011. The news from the Middle East is still dominated by political unrest and the uncertainties surrounding the United State's involvement in Libya. Oil closed Friday at $105.40, up $4.33 (4.28%) from the previous week's close. For the year, West Texas Intermediate is now up 15.54% for the year. Gold closed Friday at $1427.60 up $11.50 for the week and is now up 0.56% for 2011.

The Barclays Aggregate Bond Index was off 0.63% for the week marking only the second down week in the past six weeks. For the year, this broad bond index is up 0.41% for the year. The US 10-year Treasury yield closed up to 3.435% compared to last Friday's close of 3.273% on some generally positive economic news in the US and growing expectations that the Federal Reserve will not immediately launch into another round of quantitative easing after QE2 expires in June.

WHAT'S GOING ON IN EUROPE?

The news from Europe last week was not good. Portugal is getting ever closer to a bailout, and Moody's Investment Services downgraded Spain's banks last Thursday after the rating service cited concerns about the regional banks' ability to raise additional private capital. Additionally, the European Union (EU) failed to reach an agreement on the European Stabilization Fund which is the EU's permanent vehicle to deal with failing member countries.

While the Portuguese Prime Minister said that the country would continue to make efforts to cut spending and take care of existing debts, most outside observers say it is simply a matter of time before the Portuguese take bailout funds. The essential problem is that the Portuguese simply do not have the reserves meet its debt obligations as they come due, and the ever increasing costs of borrowing private money will prevent the country from going out and borrowing new money to cover the old debts. Bailout funds would be provided by the EU to Portugal to meet its current obligations and at interest rates that are more affordable. It is imperative to realize that countries receiving bailouts are simply replacing current debt with new debt at below-market interest rates. The debt will eventually need to be repaid.

The European leaders were quick to point out that they do not believe that Portugal's problems will spill over to Spain, but only time will tell. The Spanish are facing a slightly different problem from Portugal in that the problem in Spain is found in the regional banks which is the backbone of Spain's financial system. The regional banks require additional capital to offset potential loan losses primarily in real estate investments (sound familiar?). The Spanish have been approaching hedge funds and other sovereign (country) funds for investments, but private investors have been critical of the lack of clarity of the debt on the banks' books and the quality of that debt (sound familiar?) making it difficult for private lenders to assess the risk and thus properly price their investments.

I have no doubt that the Europeans will act to meet the needs of member countries, the question will be at what cost? The tie-in to US markets is how much investment has been made by US banks and hedge funds into European debt and the possible losses they are facing. This problem will continue to simmer and we can only hope that it does not come to a boil.

FEDERAL RESERVE SPEAKING OUT

Much has been made of the recent openness by the Federal Reserve as Chairman Bernanke in that he has committed to holding four press conferences each year. Of immediate interest is how the Fed will act in the coming months as QE2 comes to an end and what is the future of monetary easing. The first possible hint of this was given by the St. Louis Federal Reserve President James Bullard this Saturday in Marseilles, France.

Bullard's statements were covered extensively in a Bloomberg.com article where Bullard said that "the economy was looking pretty good," and that it might be possible to evaluate the possibility of terminating QE2 early. Bullard went on to express how he thought the Fed might start withdrawing its stimulus by starting with bond sales (this would pull money out of the economy), then changing the wording of "extended" when describing how long the Fed plans to keep interest rates at near zero, and then actually start raising interest rates. Bullard was very clear that if this was not done, the chances of inflation would be increased.

The fact that the Fed is even talking about ending its simulative policies can be seen as a positive about the US economy. This view was strengthened when the final revision to the 4th Quarter, 2010, GDP figures were revised upwards to 3.1% primarily on the strength of retail sales.

LOOKING AHEAD

I continue to favor US stocks and Commodities. I believe that international investments should be closely evaluated and only the strongest technical investments retained. While I do not make predictions (who can?), I do believe that there is plenty of risk overseas to make me want to be very careful before putting new money to work there.

Small and mid-capitalization stocks remain favored. Equal-weighted indexes are favored over capitalization-weighted indexes. While International stocks are no longer among the emphasized categories, the European Emerging markets are showing the greatest relative strength in the international area.

My favored broad sectors are Energy, Materials, and Technology.

I continue to believe that bonds will return bond-like returns; I am revising my views on high-yield bonds and am now suggesting a reduction in allocations to high yield bonds. The extra risk is not justified by higher yields at this time in my view. Corporate intermediate bonds and international bonds especially have been the strongest in 2011. I also continue to like senior bank loan investments also known as floating rate bonds.

Commodities are volatile. I continue to believe that oil prices are clearly sensitive to the uncertainty in the Middle East and any threats to supplies in any of the oil producing countries can cause a sharp increase in prices. A falling US dollar will also contribute to an increase in commodity prices in general. I believe that if you own gold, keep it. Gold remains a hedge against the global uncertainties.

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.

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, 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.

Monday, March 21, 2011

We have closed the book on another dramatic week as the world watched the Japanese people struggle to recover from a centuries-powerful earthquake, devastating tsunami, and an on-going fight to gain control of several nuclear reactors that were damaged during this unprecedented natural disaster. Additionally, the UN Security Council passed a resolution late on Friday authorizing UN forces to enforce a no-fly zone over Libya in an effort to prevent further human suffering, China announced that they were yet again raising the bank reserve requirement to help stem inflation, and the US Congress passed another three-week continuing resolution on the 2011 budget as larger fights over spending loom.

Major stock indexes jumped dramatically up and down during the week with 3 of the 5 trading days seeing moves greater than 1% from the pervious day's close. When the dust settled on the week, the Dow Jones Industrial Average (DJIA) lost 186 points (-1.54%) to close at 11,859 and the S&P 500 gave back 22 points (-1.71%) to close at 1279. For the year, the DJIA is up 2.43% and the S&P 500 is up 1.71%. The Russell 2000 lost 8 points (-1.02%) and for the year is up 1.40%.

Within the broad economic sectors here in the US, only Energy and Materials posted modest gains followed closely by Telecom. The bottom three sectors were Utilities, Information Technology, and Consumer Discretionary. These bottom sectors are clearly being impacted by events in Japan. The nuclear energy sub-sector was especially hard hit driving returns down across the entire utility sector. Information Technology and Consumer Discretionary stocks are being impacted by the potential for disruption of manufactured products and parts that may cause serious shortages for manufacturers and retailers here in the US.

The MSCI (EAFE) World Index lost 2.67% for the week and is now down 1.04% for the year. Japan's Nikkei Stock Index, not surprisingly, saw incredible volatility leading to a weekly drop of 9.55%. The MSCI (EAFE) is influenced by Japan with about 22% exposure to that country and helps explain this index's current under-performance. No one region of the world consistently outperformed others last week as Turkey, Greece, the UAE, Slovakia, and Qatar were the best performers while Japan, Australia, Sri Lanka, Peru and Argentina were the worst. Significantly, international stocks as a major asset category have been dropped from the top two emphasized categories on a relative strength basis. I will discuss the ramifications in greater detail below.

The Euro gained against the US dollar adding nearly three cents to close Friday at $1.4182. While economic news was not especially upbeat from Europe last week, I believe the strength of the Euro and the weakness of the US dollar against most currencies is attributable to the Federal Reserve's continued commitment to low interest rates at a time when many central bankers abroad have hinted at possible interest rate hikes to combat growing fears of inflation. For the year, the Euro is now up 8 cents (6.1%) against the US dollar.

Commodities continued to show strength with broad commodity indexes posting modest gains for the week and are among the best performing categories so far in 2011. Gold closed Friday at $1416.10 which is the same price of the previous Friday. Gold sold off sharply on Tuesday but managed to regain those losses by week's end. For the year, gold is essentially flat with a net change of -$3.60 (-0.25%) for the year.

Oil prices added $1.64 last week with West Texas Intermediate (WTI) crude closing at $101.07. The news from the Middle East, particularly Libya and Bahrain, is changing minute-by-minute and fluctuations in oil prices will likely match developments as traders try to make bets on what has become a very chaotic situation. As I have said many times before, the weakening US dollar will continue to foster general commodity inflation in the coming months.

Investors continued to put money in bonds last week as a shelter from the volatility in the equity markets. The 10-year Treasury yield closed Friday at 3.273% down from the previous week's close of 3.397%. The Barclays Aggregate Bond Index was up 0.41% for the week and for the year is now up 1.05%. The fear factor driving investors into bonds has overcome concerns about a growing perception of rising prices and inflation.

"JUST THE PRICES, MA'AM"

There are five "asset categories" that I track on a relative strength basis to help guide my investment recommendations. These categories are US stocks, International stocks, Fixed-income (bonds), Commodities, and Currencies. Using relative strength to determine the rankings reduces personal opinions, gut feelings, or predictions upon which to make investment decisions. To modify a famous quote from Sgt. Joe Friday of Dragnet fame, "Just the prices, ma 'am," clearly illustrates the unemotional basis that guides my recommendations.

Since last summer (August 2nd) International stocks have been one of the two emphasized asset categories (US stocks is currently the other). To arrive at the favored two categories, Dorsey Wright & Associates uses a proprietary mix of indexes from each of the five categories and evaluates each bundle of indexes against the others to see which two are the strongest. Think of it as the football standings in any conference or league. The top two teams in the standings are favored or emphasized over the others. As a final evaluation tool, the emphasized asset categories must also be outperforming cash. This is to protect principal as much as possible. It is important to keep in mind that these relative strength tools are not especially sensitive. It would be counter-productive for the emphasized asset categories to change every couple of days or even weeks.

After last week's market actions, International stocks category fell to third place and was replaced by Commodities. Does this mean that you should run out and sell all of your international investments? No. What it does suggest is that you should begin to trim holdings and reduce your exposure to this category. I look at the technical data of each investment to guide my pruning efforts. The weakest get jettisoned and the strongest can be retained. If you have some questions about the technical strength of your international holdings or about what commodity investments are available, please give me a call.

CROSS CURRENTS

There continues to be mixed signals from the economic news surrounding world events. While the unemployment and jobs report and corporate earnings reports in the US have shown some strengthening of our economy, other signals are less bullish. The rising inflation threat is quickly being seized upon by many central banks and these bankers are either raising rates now like India and Brazil, or suggesting rate hikes are coming like the European Central Bank, or they are taking measures to curb liquidity in their countries like China's third announcement this year to raise bank reserve requirements. Here in the US, food prices rose 3.9% in February, the largest increase since All in the Family and Sanford and Son were the two most popular shows on TV (1974).

Housing starts in the United States fell in February at the fastest rate since 1984 to reach the second lowest level since this statistic was created after World War II. The lowest level was April 2009 at the height of the fiscal crisis. According to the Commerce Department, new home construction fell 22.5% to an annualized rate of 479,000 homes. These numbers are not adequate to help economic growth and are likely to persist until the foreclosure and short sale homes have finally cleared through the market. How long this will take is anyone's guess at this time.

I will continue to watch events unfold in the Middle East, the European Union's efforts to prop up weak countries, and the efforts of the Japanese to overcome their terrible calamity. I will also monitor the effects on US equity markets in the weeks ahead as the Federal Reserve ends Quantitative Easing 2 (QE2). There is a significant belief by some economists that much of the gains in the US stock markets are attributable to the large amount of liquidity injected into the economy by the Federal Reserve via QE2. What the net impact all of these events will have on financial markets is anyone's guess beyond what we have recently seen.

More than ever, the value of technical analysis such as provided by Point and Figure charts and relative strength analysis is coming to the forefront. With so much uncertainty swirling around investors, these tools offer an unbiased and unfiltered way in which to see the world and react accordingly. The methodology is not perfect by any means, but it certainly helps give insights as to what investors are doing with their money, not what we think they are likely to do. This process is also not short-term based, rather, it is a marathon; just like the difference between speculation and investing.

LOOKING AHEAD

US stocks continue to remain as an emphasized asset category along with Commodities. I generally like to invest in well diversified commodity indexes to dilute the fluctuations of any given commodity sector.

I fully expect the heightened volatility to remain in the markets for now. This is a result of the greater uncertainty induced by the many events rocking the world and by potential leadership changes in the markets which often accompany such volatility.

Small and mid-capitalization stocks remain favored. Equal-weighted indexes are favored over capitalization-weighted indexes. While International stocks are no longer among the emphasized categories, the European Emerging markets are showing the greatest relative strength in the international area.

My favored sectors are Energy, Materials, and Technology (watching technology carefully).

My views of bonds have changed. While I continue to believe that bonds will return bond-like returns, I am revising my views on high-yield bonds and am now suggesting a reduction in allocations to high yield bonds. The extra risk is not justified by higher yields at this time in my view. Corporate intermediate bonds and international bonds have been the strongest in 2011. I also continue to like senior bank loan investments also known as floating rate bonds.

Commodities are volatile. I continue to believe that oil prices are clearly sensitive to the uncertainty in the Middle East and any threats to supplies in any of the oil producing countries can cause a sharp increase in prices. A falling US dollar will also contribute to an increase in commodity prices in general. Gold is trying to get even for the year. I believe that if you own gold, keep it. Gold remains a hedge against the global uncertainties. I see no reason at this time to sell any commodities in portfolios; however, this does not mean we forget about these positions.

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.

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, 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, March 15, 2011

Market uncertainty reached a crescendo Wednesday night and Thursday last week prompting market pullbacks around the world. Friday we woke up to the horrible news of the tragedy in Japan but US markets managed to rally.

The volatility that has gripped the markets the past few weeks continued. The Dow Jones Industrial Average (DJIA) lost 125 points (-1.03%) to close the week at 12,044 and the S&P 500 gave back 17 points (-1.28%) to close at 1304. For the year, the DJIA is up 4.03% and the S&P 500 is up 3.71%. The Russell 2000 lost 22 points (-2.69%) and for the year is up 2.45%. All major indexes have given short-term sell signals.

Looking at the broad economic sectors the week brought about what could best be described as roll reversals. By that I mean the best performing sectors so far this year took the brunt of the sell-off (I will discuss this phenomena in greater detail shortly). Energy, which had been up double digits was the biggest loser followed by Materials and Technology. Utilities, Consumer Staples, and Telecom were the winners. For the year, Energy still remains #1 up nearly 10% followed by Industrials and Health Care. Telecom, Materials, and Consumer Staples are the bottom three.

The MSCI (EAFE) World Index lost 3.42% for the week and is now up 1.68% for the year. From a country and regional basis, the Middle East as a group is underperforming for the year, while European countries continue to lead. So far in March, the best performing countries are rotating over to the Pacific-Asian region while the Middle East continues to underperform. Peru is the one exception to the regional biases as it remains near the bottom for March and 2011. Another important observation that I have seen from a technical standpoint is that average technical scores of emerging and developed markets that I track have essentially become equal and have started tracking together recently.

The Euro fell slightly against the US dollar losing -0.55% closing at $1.3910 compared to the previous week's close of $1.3987. The weakness of the Euro follows downgrades by Fitch of Greece and Spain by Moody's. These downgrades continue to remind investors that the debt crisis in Europe has not been resolved and that more bailouts may be coming. The Europeans are working on a self-imposed deadline of March 25th to complete work on the new bailout provisions. In meeting this past week, the Europeans did make some tweaks leading into the final summit in two weeks, but the European Central Bank head came away disappointed. I will devote more to this subject after the final meeting.

Gold closed Friday at $1416.10 down $12.30 (-0.86%) for the week and for the year gold is off $3.60 (-0.25%). Gold prices started climbing on Friday as investors reacted to the magnitude of the Japanese disaster and the associated uncertainty.

Oil prices fell last week with West Texas Intermediate (WTI) crude closing at $100.70 falling $4.02 (-3.84%) for the week. This has not slowed the increase of gasoline at the pump and I experienced another ten cent increase paying $3.79 per gallon for premium this weekend. The lack of truly disruptive protests in Saudi Arabia and expected drop in demand from the Japanese as they cope with the earthquake are the two principal reasons for the week's drop. I also believe that Gadhafi will regain control of Libya as the US, the UN, and NATO debate on how to deal with the uprising there. I further suspect that Libyan oil will be bought as normal in the world's markets even after the brutal crackdown in the country. The real story will continue to be the uninterrupted flow of oil to Europe and the US. Disruptions will trigger an economic upheaval and impact negatively on markets worldwide. Other commodities pulled back significantly last week as investors worry about the impact of the earthquake on imports of commodities by the Japanese.

Bonds continued their rally as investors shifted money away from stocks and into bonds. The 10-year Treasury yield closed Friday at 3.397% down from the previous week's close of 3.488%. The Barclays Aggregate Bond Index was up 0.46% for the week and has now been up three of the past four weeks. For the year the Barclays is up 0.63%. The spread between the 10-year Treasury and the 30-year Treasury has narrowed recently as the longer maturity bond shows greater sensitivity to market dynamics (in this case a positive boost in price).

A LOT GOING ON LAST WEEK

The crescendo of market noise seemed to roll over investors late last week spooking the markets and prompting a greater than 2% pull back on Thursday. While the stock markets rallied on Friday to close up slightly, commodity markets continued to fall over worries of curtailed demand in oil and agriculture products from Japan. Before the earthquake dominated the news Friday, five major news stories were dominating the headlines:

• Unrest in Saudi Arabia • The escalation of Libyan violence • A reported monthly trade deficit by China • First time unemployment claims in the US jobs market increase 26,000 compared to a consensus of a 7000 increase • Spain's credit rating was downgraded by Moody's following Fitch's downgrade of Greece earlier in the week

All of these stories together signal a less than vibrant global economy. Whether the impacts are felt immediately or over then next few months or years, the news made investors question the strength of recoveries and challenge beliefs that countries are effectively moving past previous problems. The rally on Friday calmed some fears that an all-out route was not underway, but an unmistakable signal was sent to investors-the continued rally in stocks may be slowing or coming to an end for now.

THE NEW YORK STOCK EXCHANGE BULLISH PERCENT REVERSED

I have been discussing the New York Stock Exchange Bullish Percent (NYSEBP) extensively in recent weeks. Remember that it is an indicator of risk in the market, not a predictor of market performance. I think we all remember the crash of 2008 and we are influenced by our most recent experiences (particularly painful experiences) but we must keep in mind that circumstances are very different in 2011. So while I cannot predict if this is the start of a major correction or a slight pause before resuming growth, what I do know and understand is that after being in a column of X's (demand in control) since September 15, 2010, the NYSEBP is now in a column of O's (supply in control) and that a more defensive posture must be taken. For me this translates to evaluating holdings in all portfolios, raising cash in the weaker holdings, and taking more conservative strategies. In other words, our focus should now be on wealth preservation rather than wealth creation.

The sell-off last week caused particular pain in the energy sector, some parts of the technology sector, and among small and mid capitalization stocks. A quick check of recent performance shows that all of these stocks show that all of these sectors have significantly outperformed the broader market, in other words, these investments have been exceptionally strong on a relative strength basis. So when investors start selling, the first place they look to are investments with gains. Once profits have been taken, they tend to gain more rapidly when pessimism turns to optimism. Just ask yourself, if I were going to sell something because the markets are making me nervous, would you sell an investment with a 20% gain or one that is flat or with a slight loss? This emotion helped guide selling last week and may help you better understand why some of your best investments have been hit harder than the broad market-that role reversal I mentioned earlier.

What do the Point and Figure charts of the DJIA and S&P 500 tell me about support levels? The DJIA and S&P 500 both broke their first support levels of 12,000 and 1300 respectively. They have since rebounded to just above those levels, but they were breached none-the-less. The next intermediate support levels for each index are 11,800 for the DJIA and 1270 for the S&P 500. Both of these support levels are between 2% and 3% below current market levels. While significant, the real support for the markets comes at 11,100 for the DJIA and 1180 for the S&P 500. Breach of either of these levels would break long-term support of these indexes that have been in place since August of 2010.

One final observation. When I examine the Point and Figure Charts of most of my major investments, I do not see a breakdown in those charts. The indicators tell me that most holdings have become "fairly" valued when compared to their prices over the past ten weeks. This is a normal and acceptable market action. If breakdowns do occur, then they must be dealt with at that time.

LOOKING AHEAD

I recognize that a drop in account value is never pleasant and we always prefer to see markets rise. Reality is that the ride is not a smooth one and we will experience pullbacks and corrections periodically. Last week was certainly an example of this. What is important to recognize is not to let you be unduly influenced by recent market actions and remain focused on the process of investing in technically strong investments and sectors.

Small and mid-capitalization stocks remain favored. Equal-weighted indexes over capitalization-weighted indexes. US and International stocks are favored over Commodities, Bonds, and Foreign Currencies. Emerging Markets remain preferred over Developed Markets (although this has essentially become a tie).

My favored sectors are Energy, Consumer Discretionary, and Industrials.

My views of bonds have not changed. Bonds will return bond-like returns. Nothing spectacular. On a relative strength basis, High Yield, Preferred, and Floating-Rate bonds are favored. Intermediate-term corporates continue to perform well.

Commodities are volatile. I continue to believe that oil prices are clearly sensitive to the uncertainty in the Middle East and any threats to supplies in any of the oil producing countries can cause a sharp increase in prices. A falling US dollar will also contribute to an increase in commodity prices in general. Gold is trying to get even for the year. I believe that if you own gold, keep it. Gold remains a hedge against the global uncertainties. I see no reason at this time to sell any commodities in portfolios; however, this does not mean we forget about these positions.

Take a few minutes and review your portfolios. If you feel like raising cash, do so. If you are trying to decide between stocks or bonds, bonds may be attractive for now. If you want to get into the stock market, consider doing so on a step-by-step basis rather than going all in. As this market continues to go forward in 2011, I am getting the sense that sector rotation will be important to watch and take advantage of.

I want to conclude this Update by asking each of you to remember the victims and survivors of the disasters that have struck Japan. The people of Japan have suffered, and continue to suffer, from one of the worst disasters in that country's history. Let us hope and pray that the recovery will be swift and further suffering minimized.

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.

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, 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, March 8, 2011

Unrest continued in the Middle East this past week, with little hope of resolution causing oil prices to continue their dramatic rise. US economic data was generally positive, and the president of the European Central Bank sees the threat of inflation growing.

Stock markets both here and abroad were volatile but ended the week with slight gains. The Dow Jones Industrial Average (DJIA) gained 39 points (+0.33%) to close the week at 12,170 and the S&P 500 added 1 point (+0.10%) to close at 1321. For the year, the DJIA is up 5.12% and the S&P 500 is up 5.05%. The Russell 2000 gained 3 points (+0.37%) and for the year is up 5.28%.

Among the broad economic sectors in the US economy, two traditionally defensive sectors Health Care and Utilities were the top performers along with Materials (boosted by coal and mining stocks) last week while Financials, Telecom, and Real Estate were the bottom three sectors. Year-to-date Energy is dominating all sectors up over 14% followed by Information Technology and Health Care taking over the third position. Telecom, Consumer Staples, and Materials are the bottom three. Telecom continues to be the only sector negative for the year.

The MSCI (EAFE) World Index gained 0.82% for the week and is now up 5.27% for the year. For the week, strength moved east as countries like Pakistan, South Korea and India were the best performers while Middle Eastern countries, not surprisingly, were the worst performers. Peru is the one non-Middle Eastern Country that found itself in the bottom five last week. For the year, Europe continues to lead all countries in total performance while Egypt, UAE, Qatar, Peru, and India remain solidly at the bottom. China has recently been showing some strength and will bear watching.

The Euro continued to make solid gains against the US dollar last week closing just below $1.40 at $1.3987 compared to the previous week's close of $1.3754. The Euro will continue to attract buyers over the US dollar following comments from the European Central Bank President, Jean-Claude Trichet warning Thursday about the potential for inflation and said that a hike in interest rates was possible in the next few months. Compared to the Federal Reserve Chairman's continued support of an accommodative monetary policy (low interest rates), it is clear to currency investors that non-US bonds are a better investment. Strength of the Euro will continue as long as the European Union can resolve the terms of their debt bailout facility in the next month. Always reminding us that the debt problem is never far away, Fitch announced that they were downgrading Spain's outlook from "stable" to "negative" on concerns over bank restructuring. Early Monday morning (March 7th) Moody's announced a major reduction in Greece's debt rating three notches to B1 from Ba1. These moves push Greece's rating deeper down into junk status.

Gold gained $19.10 (+1.36%) per ounce on Friday to close the week at $1428.40. For the year, gold is up 0.61% with gains of nearly 6% in the last 30 days. Gold remains an important hedge against uncertainty.

Oil was the biggest mover in the commodity space again last week. Oil gained $6.85 per barrel (7.00%) for West Texas Intermediate and closed at $104.73. I suspect the huge swings in oil prices will continue for now. I also know that we are all feeling the impact at the gas pump. A week ago I paid $3.49 per gallon for premium in Virginia Beach, and today (Sunday, March 6th) I paid $3.65 a jump of $0.16 (4.6%). The price of oil, if it continues at this level, will negatively impact the current recovery here in the US as well as abroad. Most economists, however, cannot say how high oil must go and for how long before the economy begins to see an oil-related slowdown. On more reason I like to follow the numbers and look for the trends to develop with the help of Dorsey Wright & Associates.

Bonds pulled back a bit last week. The 10-year Treasury yield closed Friday at 3.494% slightly higher than the previous week's close of 3.415%. The 30-year Treasury yield also increased at a slightly greater rate than the 10-year causing the "spread" or the difference between the 10-year and 30-year yields to widen slightly. The 30-year Treasury is most sensitive to anticipated interest rate/inflation increases. The Barclays Aggregate Bond Index, representing a broad basket of US bonds, fell 0.05% for the week but remains positive (0.17%) for the year.

KEY HEADLINES

I am not going to dwell on the turmoil in the Middle East. It speaks for itself. However, the long-term impact of high oil prices will serve to slow global growth and any further interruption of oil supplies will create an immediate and very difficult economic environment.

Commodities in general have continued to post gains. The weakening of the US dollar is a major driver in higher commodity prices. A perceived growing global economy is also adding to the higher prices. Please keep in mind that commodities are a very volatile investment and can change direction quickly, and any investment in this area should be measured.

The US unemployment report came in moderately positive with a net gain of 192,000 jobs and the overall unemployment rate fell to 8.9%. This is the minimum rate of growth necessary to start making an impact in the serious unemployment problem that has been in place for the past two years. I applaud this number, but the country needs consistent monthly gains of 250,000 to indicate that the economy is really picking up steam. Additionally, the overall unemployment rate is falling mainly because the Department of Labor has taken hundreds of thousands of workers out of the labor pool in the last six months. If any of these people start looking for jobs, the stated unemployment rate will reverse course and start rising.

The Europeans are continuing their meetings to reach an agreement on the bailout fund which has helped countries like Greece and Ireland get their borrowing on an affordable and sustainable path. The Irish are expected to come back and try to renegotiate the rates on their bailout package and with Spain's downgrade by Fitch, the work by the debt committee gains in importance. A successful conclusion of this plan will be a strong boost to Europe.

Looking Ahead

The unrest in the Middle East continues. Gadhafi has shown that he will take any measure to hold onto power, and it is doubtful that without a strong intervention by the US or Europeans, Libya's troubles will continue for the foreseeable future keeping energy markets on pins and needles. The Saudi's have come out and said any demonstrations are illegal under Saudi law and will not be tolerated in anticipation with this Wednesday's (March 9th) scheduled protests. The stability of Saudi Arabia is critical.

The gaining strength of the US economy pushing against the uncertainty of the world's oil supply and oil prices has investors without a clear signal in market direction. Looking at my Point and Figure charts of the DJIA and S&P 500, this could not be clearer. Buyers and sellers are currently in a battle for supremacy and I will be watching closely to see which direction the charts break. A move to 12,300 by the DJIA will be a very positive sign, while the DJIA at 12,000 or below will be a negative. For the S&P 500 a move to 1350 will be a positive sign, while a move to 1290 will be negative. For the week, the New York Stock Exchange Bullish Percent (NYSEBP) remains in a column of X's (demand in control) at a strong reading of 77.14.

Equities remain favored over bonds. Small and Mid capitalization stocks are favored over large cap, and growth is favored over value. Energy, Industrials, and Technology are my favored sectors, and I still favor Emerging Markets over Developed (although both are doing well).

International bonds have started to show strength as interest rates gain abroad and the US dollar weakens. I prefer corporate bonds over municipals or Treasuries, and I continue to like high yield and preferreds.

Commodities will remain volatile. I continue to believe that oil prices are very sensitive to the uncertainty in the Middle East and any threats to supply in any of the oil producing countries will cause a sharp increase in prices. A falling US dollar will also contribute to an increase in commodity prices in general. I believe that if you own gold, keep it. Gold remains a hedge against the global uncertainties. I see no reason at this time to sell any commodities in portfolios.

This market remains volatile and challenging. Stay alert and pay attention to your portfolios and 401(k) plans.

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.

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, 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.

NTrust Wealth Management | 780 Lynnhaven Parkway | Suite 190 | Virginia Beach | VA | 23452

Tuesday, March 1, 2011

The past week was dominated yet again by the turmoil in the Middle East with the focus turning away from Egypt and on to Libya. In response to the turmoil there, oil and gold prices jumped, the stock market fell, and interest rates dropped.

Stock markets around the world posted losses last week as investors struggled to gauge the new risks posed by the unrest in Libya. The Dow Jones Industrial Average (DJIA) lost 261 points (-2.10%) to close the week at 12,130 and the S&P 500 gave back 23 points (-1.72%) to close at 1320. For both indexes it was the largest percentage drop since the week of November 12, 2010. For the year, the DJIA is up 4.78% and the S&P 500 is up 4.95%. The Russell 2000 lost 12.27 points (-1.47%) and for the year is up 4.89%.

Among the broad economic sectors in the US economy, only Energy posted a positive gain last week, however, the next two best performing sectors: Utilities and Real Estate were off just marginally. Industrials, Materials, and Consumer Discretionary were the bottom three sectors for the week. Year-to-date Energy, Information Technology, and Industrials are the top performing sectors while Telecom, Consumer Staples, and Utilities are the worst. Only the Telecom sector has a negative return so far for 2011.

The MSCI (EAFE) World Index lost 1.56% for the week and is now up 4.42% for the year. Developed Markets, predominantly European countries, have outperformed so far in 2011. As I have highlighted in previous Weekly Updates, the best performing countries this year were last year's dogs. Greece, Spain, and Italy are all up double digits while France and Portugal are also well above the MSCI (EAFE) World Index return. Emerging Markets are continuing to struggle. India, the largest of the emerging market countries, is down 15% so far in 2011. Chile and Turkey are also down double digits. The international space continues to challenge investors.

The Euro continued its gains against the US dollar last week adding 0.41% closing at $1.3754 compared to the previous week's close of $1.3698. For the year, the Euro is up 2.88% compared to the US dollar. The Euro ended 2010 at $1.3369. The strength or weakness of the US dollar recently remains fixed to investor expectations regarding interest rates with the notion of the US dollar serving as a "safe haven" as a secondary driver. Here in the United States, the Chairman of the Federal Reserve, Ben Bernanke, has continually reinforced his commitment to an accommodative monetary policy (low interest rates and growing money supply) which continues to hold US interest rates down and lowers the demand for US debt. With lower yields, foreign investors have less interest in US debt and will look elsewhere for higher yielding debt thus lowering demand for US dollars, keeping our currency cheaper compared to other currencies.

There are enormous geopolitical consequences to a weak dollar both here and abroad. We are seeing some of this played out today as food inflation is helping to foster the unrest we are seeing in the Arab world. Emerging market countries are dealing with new inflation pressures and are resorting to tightening monetary policies to stem the impact of cheap US dollars flooding the world contributing in part to their recent under-performance.

Gold closed Friday at $1409.30 after another week of strong gains. Gold is now up 5.66% for the month and is just below the close of 2010 of $1419.70. Investors will continue to use gold as a hedge against uncertainty around the world. Compared to stocks, gold has not been a great investment this year, however, when stock markets suffer under the weight of political unrest; gold has served as a hedge against this uncertainty. I hold gold today for this reason.

Oil was the biggest mover in the commodity space last week. With worries of a disruption of Libyan oil supplies, oil gained $11.88 per barrel (13.81%) for West Texas Intermediate. At one point during the week, oil jumped to $103 per barrel before pulling back on the news that Saudi Arabia would step up oil production to make up for the loss of Libyan oil. Gasoline prices have jumped dramatically at the pump here at home as I know everyone is aware. I recently paid $3.49 per gallon which is the most I have paid since oil prices shot up to $147 a barrel in 2008. I will discuss the impact of oil prices on the economy in a moment.

Bonds rallied for a second week with the Barclays Aggregate Bond Index gaining 0.73% and is now up 0.22% for the year. The 10-year Treasury yield closed Friday at 3.415% down from the previous week's close of 3.634%. This was the largest drop of the 10-year yield so far in 2011. The 30-year Treasury yield also fell last week to 4.497% from the previous Friday's close of 4.716%. With oil prices rising dramatically, and with it inflationary expectations, you may be wondering why longer-term interest rates fell. I will offer an explanation below.

GLOBAL UNREST, OIL PRICES SURGE, AND INTEREST RATES DECLINE--WHY?

Oil prices surged last week over concerns that the Middle East oil supply was at risk of interruption. Prices pulled back somewhat when Saudi Arabia said it would make up any supply shortfalls from Libya calming investor worries. Nonetheless, oil still gained nearly 14% and for a time reached $100 per barrel. Why did the equity and bond markets react the way they did?

Stocks pulled back for several reasons. For starters, stock markets hate uncertainty, and the unrest abroad makes investors nervous. The worst possible scenario would be for the unrest in the Middle East to spread to Saudi Arabia. If that should happen, then you would see a major correction of stock markets all over the world. As of this moment, it is too early to tell what the final outcome of all of this will be. I do believe the face of the Middle East, for good or bad, will be significantly altered. Second, higher priced oil serves as a drag on global economies. For every extra dollar or euro spent on oil, there is one less to spend on other items. And this anticipated effect is what has had the greatest impact on the US stock market. Let me put it another way, for every $10 increase in the price of oil, the US will spend another $75 billion for oil and not on clothes, furniture, electronic gadgets, or other items. Goldman Sachs has published a paper that suggests that for every $10 increase in the price of a barrel of oil it will shave 0.2% off the US Gross Domestic Product (GDP). This major diversion of US dollars away from other sectors and industries at a time when the fragile US recovery is still in doubt will hurt family budgets and corporate profits.

The bond market's reaction may be the most curious of all. Bond investors hate inflation. They hate higher interest rates. With oil prices surging, the prevailing view should be that inflation is just around the corner. Yet bond yields fell. The 30-year Treasury yield is most sensitive to inflationary worries and that yield fell last week. The bond markets are signaling that inflation is not the problem, but a slowing economy is. Bond investors do well in weak economic times when inflation is tame. Additionally, as investors fear the stock market, they turn to the bond market and this additional demand helps push up bond prices and yields down.

So watch the 10-year and 30-year Treasury yields for inflation expectations. Watch the price of gold for the level of uncertainty in the world, and the stock markets for investor expectations of economic growth within their respective countries.

A BRIEF WORD ON EUROPE

Irish voters went to the polls this past Friday. The ruling party, Fianna Fail, is expected to be thrashed by voters after being in power for the past 13 years and overseeing the bank debacle and agreeing to the bailout by the European Union (EU) and International Monetary Fund (IMF). According to the Wall Street Journal this past weekend, the Fine Gael party (a slightly center-right organization) is expected to win the most seats; however, it is doubtful that it will be enough to form a ruling majority. If other, more liberal parties gain a solid position within the Parliament, the terms of the bailout may be called into question, and the Irish may renege on previous bailout terms hurting the credibility of the EU and the Euro.

I raise this point to highlight the difficulty the Europeans can expect to have as the EU finance ministers meet in March to craft new terms to the EU bailout fund. Remember that at the heart of the new terms being pressed by Germany and France is to require countries that take loans to become more compliant to the EU and the European Central Bank's terms. In other words, a country would be required to give up a portion of its sovereignty to the EU. The loss of power by Fianna Fail will serve as a strong warning to other politicians considering a bailout. Portuguese leaders have been adamant about rejecting a bailout, and the reason may be more for political survival than any other. When asked to give up their sovereignty, European leaders may try to find other alternatives to the EU's proposed heavy hand. Because it is not on the front page of the Wall Street Journal or Financial Times, it does not mean that the European debt crisis is over and all is good in Euroland. I suggest that it is imperative to not lose sight of what is going on in Europe.

Looking Ahead

Unrest around the world, particularly in the Middle East, continues. By the time this Weekly Update is published, Libya may have a new leader, or at least Gadhafi could be gone. There is no clear picture of whom or what would replace the dictator if he should fall. Let us all hope and pray that the transition can proceed with a minimal loss of life and without the country imploding into chaos.

I also have mentioned before that China is getting pressured by outside Chinese dissidents to become more democratic. China has many of the same problems that have contributed to the unrest in the Middle East: inflation, high food prices, growing unemployment, corruption by government officials, and growing disparity between the haves and have nots. I expect that the autocrats that run China to move quickly to quash all pro-democracy efforts as they have in the past. This will not, however, fix the problems that are affecting the economy. For the year, China's markets are off by over 2%.

The first week of the month brings important economic data. After the Department of Labor announced last week that the nation's GDP was revised downward from an annual rate of 3.2% in the 4th Quarter, to 2.8%, the data on January unemployment will be watched carefully (released at 8:30 AM on March 4th, Friday). The economic data is not all bad and there has been growth, but any sign of weakness would be problematic. Key data being released: Monday-Personal Income, Pending Home Sales, and the Chicago Purchasing Manager's Index; Tuesday-Construction Spending, and the ISM Manufacturing Index; Thursday-ISM Non-manufacturing Index; and Friday is the Unemployment Rate.

The New York Stock Exchange Bullish Percent fell to 76.37 last week. Not enough to reverse so demand for stocks remains in control. It will take a reading of 74.32 to cause a reversal. Small and mid-capitalization stocks remain favored. Equal-weighted indexes are favored over capitalization-weighted indexes. US and International stocks are favored over Commodities, Bonds, and Foreign Currencies. Emerging Markets remain preferred over Developed Markets (this relationship is under pressure right now).

My favored sectors are Energy, Technology, and Industrials. My views on bonds have not changed in 2011. Bonds will return bond-like returns. Nothing spectacular. On a relative strength basis, High Yield, Preferred, and Floating-Rate bonds are favored. Intermediate-term corporates continue to perform well.

Commodities are volatile. I continue to believe that oil prices are clearly sensitive to the uncertainty in the Middle East and any threats to supplies in any of the oil producing countries can cause a sharp increase in prices. A falling US dollar will also contribute to an increase in commodity prices in general. Gold is trying to get even for the year. I believe that if you own gold, keep it. Gold remains a hedge against the global uncertainties. I see no reason at this time to sell any commodities in portfolios.

On a personal note I want to thank all of you who have sent me kind notes about my involvement in last weekend's Wall Street Journal article titled "Boomers Find 401(k) Plans Fall Short." I was privileged to speak to the article's author, Jim Browning, a number of times about this important subject, and his article was extremely well received and picked up by nearly every major news outlet around the country. If you have not seen or read the article, please contact me and I will make sure you get a copy.

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. NTrust Wealth Management | 780 Lynnhaven Parkway | Suite 190 | Virginia Beach | VA | 23452