Wednesday, June 29, 2011

US markets were mixed this past week following a flurry of economic news. The Federal Reserve announced that the economy was slowing and revised growth forecasts downward, the International Energy Agency (IEA) unexpectedly announced that it would tap oil reserves, Europe remains embroiled in Greece's debt crisis, and Republican legislators walked from on-going debt reduction negotiations.

For the week, the Dow Jones Industrial Average (DJIA) lost 70 points (-0.58%) to close at 11,935 and the S&P 500 lost 3 points (-0.24%) to close at 1268. The Russell 2000, an indicator of smaller capitalization stocks, quietly posted a gain of 2.05%. For the month of June the DJIA is down 5.05%, the S&P 500 is down 5.71%, and the Russell 2000 is down 5.95%. Returns for the year remain positive for the DJIA (3.08%) and S&P 500 (0.86%), and the Russell 2000 is once again positive with a year-to-date return of 1.80%.

Sector returns continues to be somewhat schizophrenic as last weeks worst performer, Materials, led this week with over a 3% gain. Consumer Discretionary, Information Technology, and Industrials round out the top four weekly sector gainers. Consumer Staples, Utilities, Real Estate, and Financials were the bottom four. For the year, Health Care, Consumer Staples, Real Estate, Energy, and Telecom are the top five performers; while Financials, Information Technology, Materials, Industrials, and Consumer Discretionary are the bottom five. Only Financials, Information Technology, and Materials have under performed the DJIA and S&P 500 so far in 2011.

International markets remain under pressure challenging the European Union's ability to cope with the growing problems in Greece and to a lesser extent, Italy. The MSCI (EAFE) World index was down 0.80% for the week and is now down 5.71% for the month. Fears remain centered around Greece and the possible spread of the debt contagion to other southern European countries such as Spain and Italy. This uncertainty has resulted in European countries holding the bottom 10 of 12 country positions of my list of 66 countries that I follow for the month of June. Both developed and emerging markets are struggling to remain above or even turn positive from an absolute return basis. Today, developed markets hold a slight performance edge over emerging markets so far in 2011; however, emerging markets remain favored on a relative strength basis.

Commodities generally fell across the board pushed by the sudden drop of oil prices following Thursday's 9:00 AM (EDT) announcement by the IEA that the 28 country organization of consuming nations had agreed to release 60 million barrels of oil from their strategic oil reserves over the next 30 days. The announcement precipitated a drop of 6% in the price of a barrel of West Texas Intermediate crude. At one point during Thursday the price fell below $90 before closing at $90.39. Friday saw oil prices rise slowly closing at $91.18 compared to the previous week's close of $92.91 (-2.22%). Gold prices fell $35.50 (2.31%) for the week to close at $1500.50. Gold's fall was attributed to reduced inflation expectations on both the fall of oil and slowing global growth. The Dow Jones UBS commodity index fell 2.20% for the week and is now down 4.24% for the year.

The Barclays Aggregate Bond Index resumed its winning ways by picking up 0.35% for the week marking the 10th up week out of the past eleven. The 10-year US Treasury yield closed at 2.872% its lowest weekly close since December 1, 2010. US Treasuries have rallied this week on the turmoil in Europe and continued negative economic news here at home. Fed Chairman's Bernanke downgrade on the outlook of US economic growth solidified the rally. Overall it was another good week for most bond categories led by Treasury Inflation Protection notes (TIPs), high yield, emerging market bonds, and investment grade bonds. International inflation protection notes, international treasuries, and very short duration bonds were the poorest performers. For the year, international treasuries and TIPs, municipals, and US TIPs have been the best performers while high yield and short duration have been the worst. The good news is all have positive returns when interest is factored into total returns.

THE MEDIA CHORUS IN HARMONY

The headlines in the press have turned decidedly bearish as the markets turn more negative. Since the beginning of May, the DJIA is off 6.84%, the S&P 500 is off 6.98%, and the Russell 2000 is off 7.80%. International stocks have fared worse with the MSCI (EAFE) index off 9.12%. There is no doubt that the economic data has justified this pullback. First time unemployment data remains firmly above 400,000 each week, the US economy is growing at less than 2%, the housing sector is mired in foreclosures and short sales even as the Federal Reserve has maintained interest rates at near record lows. Europe is barely hanging on. So not surprising it is all doom and gloom in the media.

But does the media's obsession with negative reporting offer an indication that things may be turning around? There has been an interesting dynamic going on recently within the many technical indicators I follow. Just as the news turns more and more pessimistic each day, my technical indicators have been showing signs of leveling off. The rate of change to the downside has slowed significantly or even turned slightly positive. The volatility in the market is certainly present, but when you step back and look at weekly chunks of data, the net result of all the ups and downs, the numbers are less dramatically bad. Does this mean that we are out of the woods? Absolutely not. But, to use a military metaphor, we have stopped the initial rout and have started to establish a defense.

There remain a lot of uncertainties. The sudden drop in oil prices is a result of a one-time injection of oil. The Saudis hold the key to establish more permanent price improvement if they in fact come through with extra production. The Greek problem is challenging. I still believe that this immediate crisis will be dealt with, but the Greek's must make unpopular and meaningful cuts to spending. Watching the on-going riots in Athens makes most investors doubtful, and ultimately longer term issues must still be worked out for all of the southern-tier countries. Finally and most importantly, the US economy must get turned around. Our debt limit negotiations must be dealt with in a mature and relevant manner, Americans must get back to work, the housing market must clear, and our spending must be brought down to a sustainable level.

But for now, going into July, the first signs of the markets stabilizing are showing. By the time the media chorus starts singing the same song, it may be time to tune out.

LOOKING AHEAD

The markets are in a nervous state and can be expected to react to most key economic news. This coming week there will be five major points of data released by the government. The most significant will be the first time jobless claims on Thursday and the Institute for Supply Management (ISM) Manufacturing Index on Friday. The markets are going to be watching closely for any indications that the economy is beginning to come out of the "soft patch" it is currently mired in.

Stocks are generally still favored over bonds, small and mid-capitalization stocks favored over large. Growth over value, and equal-weighted indexes over capitalization-weighted. While I have no significant preference within the various broad economic sectors other than avoiding Financials, I am concentrating more on Health Care, Consumer Staples, Real Estate, and Energy. Utilities have proven to be a good bond-alternative option within the equity space.

I am avoiding any major new investment in the international category and have been trimming some of my more volatile investments recently. If you have a desire to raise cash in your portfolio, weaker international investments may be sold. I firmly believe that over the coming years emerging markets have the potential to offer many outstanding opportunities, but for now, be wary. I will address individual positions with you on a case by case basis.

Commodities have come under stress recently but longer-term precious metals and energy remain favored. Please keep in mind that this is a highly volatile sector and entering positions in this category should be done so with the understanding that you are likely to experience greater volatility than with many other investments.

Most bonds have been a stable investment so far in 2011. Going into the last week in June, bonds remain the most overbought asset category of the five I follow; however, I am not reducing my exposure to this important category. I prefer high quality corporates, emerging market debt, and TIPs. I know that I have been telling you that over the longer-time I do not like TIPs, but they have shown recent strength. While high yield bonds have fallen to the bottom bond sector recently, I will keep an eye on this important asset class for improvement if stocks stabilize.

I remain cautious and defensive; however, we could be reaching an important point in the markets over the next couple of weeks. No one can predict which way the markets will turn with any certainty, but my work with technical indicators can help to give insight to what the markets are doing and I remain poised to react either way.

On a personal note, I will taking some time off over the July 4th holiday weekend and will not publish an Update next week. I hope that each of you have a great 4th with family and friends. Let's celebrate the birth of our country and be reminded about the greatness of what we have achieved and what we will achieve.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

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Wednesday, June 22, 2011

US markets posted their first, albeit slightly, positive week in the past seven following the release of less bad economic news, an expectation that the Europeans will continue to bailout Greece, and a drop in most commodity prices.

For the week, the Dow Jones Industrial Average (DJIA) gained 52 points (0.44%) to close at 12,004 and the S&P 500 added a half point (0.04%) to close at 1272. The small capitalization stock index I follow, the Russell 2000, fell in between the DJIA and S&P 500 and gained just over 2 points (0.28%). For the month of June the DJIA is down 4.50%, the S&P 500 is down 5.48%, and the Russell 2000 is down 7.85%. Returns for the year remain positive for the DJIA (3.69%) and S&P 500 (1.10%), and slightly down for the Russell 2000 (-0.24%). The bellwether technical indicator I follow, the New York Stock Exchange Bullish Percent (NYSEBP), continued to fall and ended the week at a neutral 51.03. This suggests that there continues to be a breakdown of stocks even as the largest indexes held firm.

Seven of the eleven broad economic sectors exceeded the DJIA this past week. The best performing sector was Real Estate followed by Consumer Staples, Industrials, and Utilities. Materials, Energy, and Information Technology all posted negative returns and were the worst performing sectors. For the year, Health Care, Consumer Staples, Real Estate, Utilities, Energy, and Telecom are the top performing sectors and all are out performing the DJIA at this point. Financials, Materials, and Information Technology are the bottom three and all posting negative returns.

International markets continued to struggle under the concerns surrounding the European debt crisis. The MSCI EAFE (World) Index was down 0.97% for the week and is now down nearly 5% for the month. Sweden, Peru, China, Norway, and Canada have been the worst performing countries so far in June while only a handful of small and relatively insignificant markets such as Latvia and Lithuania have been at the top. No one region dominates economic returns as each has in their own way challenges to overcome. If Europe secures a solid agreement regarding Greece, this can be expected to help all markets for the short-term.

Of the all the commodities, precious metals have been holding up under the increasingly likely global economic slowdown. For the week, gold gained $6.80 (0.44%) and is now up $116.30 (8.19%) for the year. On the flip side, WTI Oil fell $6.38 (-6.38%) to close at $92.91 its lowest Friday close since February 18th. For the month oil has fallen just over $10 per barrel (-9.76%) and is now within $2 of the 2010 ending price. The Dow Jones UBS Commodity Index (DJUBS) fell nearly 4% under the weight of oil's pullback. For the year the DJUBS is off 2.09%. The strength in precious metals is a referendum on the levels of uncertainty particularly in the ability of governments to deal with their high levels of debt. The other commodities are more economically sensitive and so far in June we are seeing the onset of "demand destruction" which occurs when commodity prices reach such lofty levels that they reduce demand under the weight of those prices.

The Barclays Aggregate Bond Index posted its first down week after eight consecutive gains easing back just 0.10%. Bond investors pushed investments towards municipal and high quality bonds while emerging market, international inflation protection, and high yield bonds were the worst performers of the week. High yield's losses in particular have been severe enough to move it into the bottom sector of the bond universe for the year as international treasuries and inflation protection remain the top sectors and have exceeded the DJIA at this point.

CLANK, CLANK, CLUNK, DO YOU HEAR THE CAN GETTING KICKED DOWN THE ROAD?

As I have said before, I believe that European leadership will not allow Greece to go into any type of default and it appears that, for now, this objective will be accomplished. The stock market was up partially because this sentiment late in the week, but the details are still being worked out and now the focus is moving towards how this problem can be resolved in the long-term. Make no mistake about it, everything the European Union (EU), the European Central Bank (ECB), and the International Monetary Fund (IMF) have done and is doing is not fixing the real problem...the increasing likelihood that some EU member countries like Greece have more debt than they can ever afford to pay back. We have all watched how the citizenry in Greece has responded to efforts to launch true spending cuts causing the world to wonder how this problem will ever be solved. I do not know what the answer is, and frankly I do not believe the EU does either.

The best analysis of the Greek debt crisis I have read recently comes from a column on the editorial page of Friday's Wall Street Journal titled, "Europe's Greek Stress Test." The key points of the column's authors are: Greece will never be able to repay, European banks are now holding the bag by owning much of Greece's debt, the ECB is building its inventory of Greek bonds, and this is problem is not about Greece but rather Ireland, Portugal, Spain, and Italy. The authors conclude that European banks must increase their capital reserves. Eventually the private bond holders who the German's have been so intent on assuming some of the losses in Greek bonds will have completely exited Greece's bond market and only banks and taxpayers will be left to clean up the mess. Sound bleak; it is especially if you are a German taxpayer. This is why European leadership is trying to find a meaningful solution and attempting to increase the size of the bailout facility now.

I agree completely with the column's conclusion but also believe that it is imperative to raise bank reserves not only in European banks but here in the United States as well. Think of this as a rainy day fund that most of us use to pay for unexpected expenses. If you are comfortable with your potential expenses like a car repair or a tooth crown, you may not need to have a large reserve; however, if you think you may have some serious medical bills or legal bills ahead you would increase the size of your savings. This is precisely what banks need to do. Had Lehman Brothers had adequate reserves it would likely still be in business today. But the problem with reserves is that you cannot make money on them. The more a bank holds back and not lend out, the less money they make and that will not please shareholders. These types of structural issues found in the financial industry today illustrates why I absolutely do not recommend owning bank stocks at this time.

LOOKING AHEAD

It was nice to get a pause in the markets this past week, but I remain cautious following the less than exciting retail sales numbers and another first time unemployment report of 414,000 which continues to indicate unemployment is not improving. As bad as 414,000 was, the pundits saw the number as positive because consensus was expecting a bigger number. The problem is that as long as the number remains above 400,000 the overall unemployment numbers will not improve. Also in the news was the release of several manufacturing data points which showed a general slowdown underway. Market performance has been consistent with this evolving economic theme of high unemployment, moderate price increases, and slowing economic activity.

I mentioned at the top of the report that the NYSEBP has continued to fall. This is an important indicator that the broader market continues to lose ground and indicates that momentum remains negative. At 51, this index is in the "middle of the field" with half of the charts on a buy signal and half on a sell signal. Momentum is clearly moving in the wrong direction.

Commodities, except precious metals, have started to show weakness and I am re-evaluting these holdings. It is going to be difficult for many of the commodity categories to show strength when the underlying demand is decreasing. Additionally, any strength in the US dollar will also accentuate a pull back in prices.

Leadership within individual sectors is narrowing and three of the eleven broad sectors are now negative for 2011: Financials, Materials, and Information Technology. Health Care, Consumer Staples, Real Estate, Utilities, Energy, and Telecom all have outperformed the DJIA and other major indexes. I continue to emphasize the top four with regards to investment.

Bonds are holding their own in this declining equity, declining growth environment the markets have been in since the end of April. This is the kind of world in which bonds are favored by many investors. I believe that corporates and international bonds (excluding European sovereign debt) should be favored. I am steering clear of government bonds and high yield for now.

Now is not the time to be complacent. Pay attention to your portfolios and be patient. I believe there will be good buying opportunities in the future and I will be on the watch for a general shift in the markets signaling this opportunity.

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 Dow Jones UBS Commodities Index is composed of futures contracts on physical commodities. This index aims to provide a broadly diversified representation of commodity markets as an asset class. The index represents 19 commodities which are weighted to account for economic significance and market liquidity. This index cannot be traded directly. The commodities industries can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Past performance is no guarantee of future results. These investments may not be suitable for all investors, and there is no guarantee that any investment will be able to sell for a profit in the future.

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors, this is a market capitalization weighted index, meaning the largest companies in the S&P 500 have a greater weighting than smaller companies. The S&P 500 Equal Weighted Index is determined by giving each of the 500 stocks in the index the same weighting in the index. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Russell 2000 Index is comprised of the 2000 smallest companies within the Russell 3000 Index, which is made up of the 3000 biggest companies in the US.

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

Monday, June 13, 2011

Markets continued to drop falling for the sixth straight week as investors worry over ongoing bad US economic news on the jobs and housing sectors, renewed worries over the European debt crisis, and signs of a slowdown in Asia especially China.

For the week, the Dow Jones Industrial Average (DJIA) lost 199 points (-1.64%) to close at 11,952 and the S&P 500 lost 29 points (-2.24%) to close at 1271. So far in the month of June the DJIA is down 4.92% and the S&P 500 is off 5.52%. The Russell 2000 continues to be more volatile losing 3.54% last week and is now down 8.11% for June. For the year the DJIA is up 3.23%, the S&P 500 is up 1.06%, and the Russell 2000 is now down 0.52%. While the sell-off which began the first week of May has been the longest since 2002, the losses are below last summer's declines. Over a nearly identical timeframe last year (April 26th to June 7th) the DJIA was down 13.2%compared to this year's decline of 7.5% from May 2nd through last Friday. The S&P 500 dropped 13.9% compared to this year's decline of 7.3%. Both indexes bottomed out on July 1, 2010, with total losses of 15.2% and 15.8% respectively. While the pundits are busy trying to determine where the bottom will be, I do recognize that the speed on this year's correction has accelerated in June and markets can go either way at this point.

All eleven broad economic sectors were down last week for the second week in a row. The best performing sectors were Utilities, Consumer Staples, and Health Care. All three of these sectors were down less than the DJIA and S&P 500. The worst performing sectors were Real Estate, Information Technology, and Consumer Discretionary. For the year, Health Care, Energy, and Consumer Staples are the best performing sectors while Financials, Information Technology, and Materials are the worst with all three now posting negative year-to-date returns through Friday.

International markets also faired poorly. The MSCI EAFE (World) Index was down 2.45% for the week, it has lost just over 4% for the month of June, and is now up just 0.28% for the year. For the month, Turkey, Mauritius, Pakistan, Columbia, and Russia are the top five performing countries up between 1.4% and 2.4%. Sweden, China, Cyprus, Norway, and Canada are the five bottom performing countries so far in June with loses ranging from between -6.1% to -7.6%. There has been no recent clear-cut region of the world which has consistently outperformed yet Europe still holds the bulk of leaders for the year. The United States is 58th out of the 64 countries I follow for June and is 28th out of 64 for 2011. The key issues facing international markets today are the European debt crisis, a China slowdown, and the impact of the large flow of US dollars into the emerging market countries.

Gold posted a loss of $14.40 (-0.93%) last week to close at $1528.70. The weakness in gold can be attributed to the gains posted by the US dollar and the perceived global economic slowdown taking pressure off of inflationary concerns. Oil was down as well losing $1.28 per barrel to close at $98.92. Oil had been holding above $100 per barrel as the world watched the OPEC ministers vote to hold production at current levels; however, the Saudis have made it clear that they are going to increase oil production by 1.5 million barrels. The Saudis have said publically that they would like oil to trade in a $70 to $80 range as they believe this optimizes their revenue while limiting moves into alternative energy sources. Overall, commodities posted a minimal drop of about -0.17% for the week.

The Barclays Aggregate Bond Index posted its eighth straight week of increases gaining 0.09% for the week. This broad-based US bond index is now up 3.53% for the year. The US 10-year Treasury yield continued to fall closing at 2.97% from the previous week's close of 2.99%. As I said last week, when rates fall this low, the bond market is signaling a very, very weak economic recovery. I believe the real question going forward will be how long the bond markets tolerate our outsized debt? This question is all the more important as the Federal Reserve has said that it does not intend to pursue bond purchases into a third round of Quantitative Easing (QEIII). Long-term bonds, both corporate and government were the best performing sectors for the week while high yield and international treasuries were the worst. For the year, international treasuries and extended duration bonds have been the best performing sectors while high yield and short-duration bonds have been the worst (excluding interest payments).

WHAT THE HECK IS GOING ON?

I am intrigued with the ebb and flow of good and bad economic news in the media. I have often commented to my clients that the media has a "bull rolodex" and a "bear rolodex" depending on the direction of futures early each morning as they book guests to speak on the meaning of that day's market movements. Lately, there have been very few bulls.

There are very legitimate concerns regarding both the US and global economies. Here in the US we are facing an extremely stubborn and high unemployment rate of 9.1%. Housing is in trouble and appears to be heading for a double dip. The Federal Reserve's accommodative monetary policy (QEII) has not stimulated housing or helped unemployment rates. The primarily beneficiary of QEII has been stock market and with that ending for now, it is anybody's guess what will happen when the Fed completes its $600 billion bond purchase program on June 30th. The Fed has been clear that it will not cut their easy monetary cold turkey, so they are expected ease their way into a less accommodative monetary policy over an extended timeframe by reinvesting its current bond holdings back into new bonds as they mature. Simultaneously Washington seems to be hopelessly deadlocked over the debt limit and deficit spending.

The Europeans are not in agreement on how best to deal effectively with Greece as Germany's concerns are now back on center stage. According to an excellent article Saturday in the Wall Street Journal, Germany's lower house of Parliament "approved a motion that private bondholders [should] bear partial responsibility for any further aid to Greece." This non-binding stance puts Germany's parliament directly at odds with the European Central Bank and to a lesser degree Germany's own center-right Chancellor. Recognizing the domestic challenges she faces, Angela Merkel still believes that a European debt crisis must be avoided or the German recovery could be at risk. I generally do not try to predict outcomes, but in this case I do believe that the Europeans will find a way to work this out because the consequences of failing to do so would be far worse.

China is further off the radar but also important. Among other issues, there have been reports recently that Chinese real estate is starting to drop in value placing strong GDP growth numbers at risk of slowing down. Sound familiar? The Chinese will find it challenging to manage growth in the face of an increasing number of non-performing loans.

All of these issues are weighing heavily on the minds of investors both bond and equity alike. This is not the time to become complacent and I will be reaching out to my clients this week to review portfolios.

LOOKING AHEAD

The last few weeks have been challenging. Corrections, and we are certainly in the midst of a correction, are always unpleasant experiences. Over the years I can recall economists talking about the frequency of 5% or 10% corrections in the markets and that they are normal and healthy. What I also recall is just how lousy we feel during such corrections. So for now, we are in a tough time. So let's be smart about our decisions not emotional.

From a technical perspective the markets have not changed materially. Most of my key market indicators remain oversold but still above their long-term support lines. US stocks and commodities remain the two strongest asset categories. US stocks are still favored over bonds and cash, and international stocks are still in a reasonable third place of my five major asset categories. Small and mid-capitalization stocks are favored over large caps. It is important to keep in mind that this strength is due to the outperformance over the past twelve months where small and mid-caps have significantly outperformed large caps. Recently, small caps have underperformed large caps and I am in favor of taking profits in these areas if the losses are too great for you.

Commodities have been the best performing category lately. Losing just 0.17% compared to 1.64% in the DJIA is just an example of this outperformance. However, headwinds are building for commodities. A stronger US dollar will curb growth of commodities values right off the top. More significantly, however, could be the impact of a slowing global economy especially in heavy commodity consuming China. Additionally, if growth continues to remain very subdued, inflationary pressures will lesson and I would expect to see commodities give back some of their gains. I will be watching the technicals very closely.

Sectors remain a tough call. In this current environment, defensive and non-cyclical sectors (Utilities, Health Care, and Consumer Staples) can be expected to outperform. I remain very bearish on the Financial sector. The mortgage and housing mess will continue to weigh on returns as will the debit card loss in the Senate. In case you were not following that particular vote, the Senate upheld an obscure clause in the Dodd-Frank bill this past week limiting the ability of banks to charge "swipe fees" on debit card purchases. This bill has just transferred $12 billion in revenue from the banks to the major retailers.

Bonds continue to perform well. I would not become complacent in your investments. Any number of macro economic factors could impact bond values. I continue to steer clear of long-term bonds, especially treasuries due to their high valuations. I do not like treasury inflation protection notes (TIPs) because I do not believe the government properly accounts for inflation. However, if you do not have access to floating-rate bonds (bank loans), then TIPs remain your only alternative to rising rates. I continue to prefer international bonds, preferreds, and corporates. If Congress and the White House do not fix the debt problems here, floating-rate bonds will be a good alternative.

This coming week will offer another round of important economic data and I would expect the markets to react strongly either way to that information. Retail sales will come out on Tuesday, the Consumer Price Index on Wednesday, and that all important weekly new jobless claims data on Thursday to mention some of the more important releases. Remain diligent and call me if you have any questions or concerns.

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, June 7, 2011

A slew of bad economic data pushed markets lower for the fifth consecutive week while US Treasuries rallied and the US dollar weakened on news that the Europeans were reaching an agreement regarding Greece.

For the week, the Dow Jones Industrial Average (DJIA) lost 290 points (-2.33%) to close at 12,151 and the S&P 500 lost 31 points (-2.32%) to close at 1300. The poor start in June follows a down month in May where the DJIA dropped 1.88% and the S&P 500 lost 1.35%. The Russell 2000 has been more volatile losing 3.36% last week and 1.96% in May. For the year the DJIA is up 4.96%, the S&P 500 is up 3.38%, and the Russell 2000 is up 3.12%.

All eleven broad economic sectors were down last week. The best performing sectors were Utilities, Health Care, Energy, and Real Estate which were down between 1% and 2% beating the broad equity indexes. The worst performing sectors were Consumer Discretionary, Materials, Industrials, Telecom, and Financials with all but Financials down more than 3%. Defensive sectors were favored over more cyclical sectors.

International markets outperformed US markets last week with the MSCI (EAFE) World Index losing 0.22% for the week. Strength was found primarily in Europe as it became more apparent that the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF) were nearing agreement on further funding of Greece's debt. The Germans who initially resisted the EU and ECB's efforts to offer further assistance to the Greeks backed down and have essentially cleared the way for additional bailouts. With the private bond market demanding near 25% interest rates, it is not expected that the Greeks will be able to access the private bond markets for the next several years keeping the EU/ECB/IMF triumvirate on the hook to finance Greece's government. While the short-term reaction is a stronger Euro and equity markets, I do not see how this situation can continue indefinitely. The former Federal Reserve Chairman, Alan Greenspan, said it plainly Friday morning on CNBC's Squawk Box when he said countries like Greece will remain in the EU only as long as northern Europeans are willing subsidize southern Europeans. As soon as they stop, Greece will be forced to default on its debt. Mr. Greenspan went on to further say that he believed that the Euro was an "unworkable scheme." Time will certainly tell, but I tend to agree with him. The key question therefore is-when will the northern European countries stop supporting the southern European countries?

The Euro rebounded strongly last week as Greece's funding problems were apparently settled for now. Coupled with the bad economic data showing a clear slowdown in the United States and the expectation that the Federal Reserve will not raise interest rates anytime soon, the Euro added almost three and a half cents against the US dollar to close Friday at $1.463. After a very weak start in May, the Euro has now posted three consecutive weeks of advances against the US dollar with the largest gains coming this past week.

Gold posted a gain of $7.30 (0.48%) last week to close at $1543.60. The strength in gold reflects the continued uncertainty in the global economy and fears of currency weakness. Oil lost 0.18% but still closed over $100 per barrel at $100.57. The weakening US economy is putting downward pressure on oil demand and prices, but the US dollar weakness continues to help push commodity prices higher. Commodity prices overall posted a slight gain last week, with a broad basket commodity index gaining 0.32% led by gains in cotton, sugar, and coffee. For the year, cotton, silver, and coffee have all performed exceptionally well albeit with exceptional volatility.

The Barclays Aggregate Bond Index posted its seventh straight week of increases gaining 0.33% for the week. This broad-based US bond index is now up 3.44% for the year. The US 10-year Treasury yield continued to fall closing at 2.99% marking the first time the 10-year yield closed below 3% this year. To put it bluntly, the bond market is saying the economy is in terrible shape and that there is little optimism going forward. International bond investments were the best performing while high yield, preferreds and inflation protection notes were the worst. While bond returns have not been flashy, the gap between equity market returns and bond returns has been merging since the end of April.

THE STEW DOES NOT TASTE VERY GOOD

The amount of negative economic news has been building for some time but Friday's unemployment report showing private sector jobs increasing by only 54,000 and the overall unemployment rate increasing to 9.1% was the final ingredient in a stew of bad economic data. In addition to the poor unemployment report, manufacturing data, consumer sentiment data, and housing data were all very pessimistic this week. As I look at the economic landscape I see the persistent unemployment rate as problem number one. The economy cannot grow if Americans are not working. Additionally, the accommodative monetary policy the Federal Reserve has embraced, and is likely to embrace for a very long time, has weakened the US dollar and created non-core inflation for consumers to deal with every day in the grocery store and at the gas pump hurting other parts of the economy. And to cap all of this summer fun off, we have Congress and the President dithering in Washington over the debt ceiling. While two weeks ago I would have also added the European debt crisis to this unpalatable economic stew, the Europeans appear to have kicked that problem down the road for a few more months. So we will be eating our own home-style recipe of economic stew for now.

Given the overwhelming sentiment, it would be very easy to pick up your ball and go home. However, now is not the time to be emotional but rather focus on the facts to make intelligent investment decisions. So what am I seeing?

The New York Stock Exchange Bullish Percent (NYSEBP) and my primary gage of risk in the market has steadily decreased from a peak of 80.13% on January 18th to its current 2011 low of 61.57%. Additionally, the NYSEBP has given its first sell signal since May of 2010. For those of you not familiar with this indicator, this tells me what percentage of stocks in the New York Stock Exchange are on a point and figure buy signal. The higher the percentage the more stocks are actually participating in an up market. This gives me a good indication of how much strength is in the market and the counter-intuitive aspect that the higher the NYSEBP goes, the greater the risk in the market to an inevitable downturn.

The DJIA and S&P 500 are all in a column of O's meaning supply (selling pressure) is in control. Near-term support for the DJIA is 12,050 with long-term support at 11,800. For the S&P 500 it is right up against a near-term support level at 1300 with the next support found at 1240 and long-term support at 1130. Looking at most of the market-based securities that I invest in I see about half in a column of X's and half in a column of O's. I also see that most are moderately over-sold and all are well above their long-term support levels.

On a relative strength basis my key market indicators currently favor the equal-weighted S&P 500 index, mid caps, small caps, and commodities. The least favored are the US dollar, cash, short-term US treasuries, and treasury inflation protection notes.

So what I am seeing is the market in a moderate correction but nowhere near the magnitude of where we finished last May. Risk remains in place but not as much as earlier in the year, and stocks remain favored over bonds for now. While I may favor raising cash or keeping current cash levels in place depending on your portfolio, I am not suggesting now is the time to sell everything. I will remain focused on keeping the strongest technical positions in the portfolio.

LOOKING AHEAD

This is a tough time in the markets right now. The last up week in any of the major indexes was the last week in April. I am reviewing every portfolio constantly and evaluating allocations and positions carefully. I am growing weary of listening to reporters and economists use the word "unexpectedly" to describe yet another set of negative economic data. The economy is not healthy right now and I do not see any catalyst to really get things turned around. I do not believe the Federal Reserve will immediately launch into a QEIII program when it concludes its $600 billion bond buying program also known as QEII. I do believe that the Fed will take a very extended time before it begins to pull cash out of the economy and will remain accommodative for the foreseeable future. This means that interest US interest rates will remain low and commodities will remain more expensive. The challenge of predicting future commodity prices is the ongoing tug-of-war between weakening global demand and a weak US dollar.

There have been no changes to my recommendations. Stocks and Commodities are the two favored asset categories. International equities remain a close third. As this market pulls back it is imperative to monitor your investments closely for any breakdowns. Small and mid capitalization stocks remain favored over large cap even though small and mid caps have seen a greater sell-off recently. Yet these categories are still outperforming large caps over a 6 and 12 month period.

Commodities remain a favored asset category and have generally strengthened recently, however, keep in mind that this is a particularly volatile asset category. Gold has held up extremely well as an uncertainty hedge, and I still believe that an investment in a well diversified basket of commodities offers investors a hedge against inflation and a weakening US dollar.

Sectors bets have been a tough call to make this year. On a relative strength basis the top sectors are Consumer Discretionary, Real Estate, Telecom, and Health Care while Financials, Materials, and Utilities are at the bottom. On an absolute return basis, Health Care, Energy and Real Estate have been the top performers in 2011 with Financials, Materials, and Information Technology at the bottom. I maintain my recommendations based upon my relative strength work but as I have said in the past the only sector I absolutely do not advocate any exposure to is the financial sector. I do not like the banking sector in particular and I feel that there is far more downside than upside to this politically charged sector.

The likely extended weakness in the US dollar will benefit non-US denominated bonds so I continue to favor exposure to the international bond sector. Preferreds and high yield bonds have struggled recently, but I continue to favor exposure to these sectors. I continue to dislike US treasuries because of their low yields and high valuations and Treasury Inflation Protection Bonds (TIPs) because core inflation data is likely to remain low for an extended period of time and I believe these bonds do not provide true inflation protection right now because food and fuel are excluded from inflation calculations.

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.