Wednesday, August 24, 2011

With the continued overhang of European banking worries and decidedly weak economic data here at home, global markets pulled back with US markets turning in the third worst week so far in 2011.

Early increases in the week gave way to growing pessimism culminating in a 420 point drop in the Dow Jones Industrial Average (DJIA) on Thursday and ended the week down 451 points (-4.01%) to close on Friday at 10,817.65. The S&P 500 and the Russell 2000 mirrored the DJIA losing 4.69% and 6.57% respectively. For the month the DJIA is down 10.92%, the S&P 500 is off 13.06%, and the Russell 2000 has fallen an eye-catching 18.23%. This leaves the DJIA down 6.56% for 2011 while the S&P 500 is off 10.66%, and the Russell 2000 is off 16.84%.

Utilities was the only sector to post a positive return last week (1.5%) while Consumer Staples, Telecom, Health Care, and Real Estate all out performed the DJIA. At the bottom were Information Technology (-8.1%), Industrials, and Materials. For the year, Utilities (2.7%) and Consumer Staples (2.3%) are the only positive sectors. Financials (-21.8%) is the worst performing sector in 2011 followed by Industrials, and Materials.

The MSCI EAFE Index fell 3.50% last week as European policy makers struggle to stay ahead of the growing banking crisis. The summit in Paris between French President Sarkozy and German Chancellor Merkel failed to calm the markets and highlighted the incredibly difficult challenge Europe must overcome-instituting a "federal" economic system over 27 sovereign countries. The United States understood this challenge in 1790 when Alexander Hamilton called for and effected the consolidation of states' debt accumulated by the colonies during the Revolutionary War. The price extracted from the states for converting their individual state debt to federal debt was to give the US federal government greater fiscal authority (Growth in Emerging Countries Slows Significantly, The Wall Street Journal, August 17, 2011).

Looking around the globe no one region is outperforming another, with the Middle East qualifying as the worst of the worst. For the month of August, the MSCI EAFE is down 13.91%, and is down 12.79% for the year.

The Euro and US dollar continue to move marginally against each other. For the week, the Euro gained one and one-half cent to the US dollar closing at $1.439. The real action is coming from currencies that are seen as "safe havens" which include the Swiss Franc, the Brazilian Real, and the Japanese Yen. Each of these currencies has seen significant appreciation against the US dollar.

Gold continued to be the story of the week as the price of gold once again reached record levels Friday morning ($1868.40) before closing Friday afternoon at $1852.00 giving gold a weekly gain of $109.40 (6.28%). For the year, gold has now added $432.30 (30.45%) per ounce raising concern that a "gold bubble" may be emerging. As long as investors' fears about the markets and government policies grow, the more gold will continue to rise.

The price of oil continued to pull back over demand concerns losing $2.68 (-3.14%) per barrel of West Texas Intermediate (WTI) closing Friday at $82.70. An interesting divergence is beginning to develop between the price of US-produced oil (WTI) and that of Brent oil, which remains above $108 per barrel. Brent oil is produced in the North Sea and is viewed as a broader indication of oil prices than WTI. I will address this topic in my next Weekly Update.

The Dow Jones UBS Commodity Index, which measures a broad basket of commodities, gained 1.26% last week primarily on the strength gold prices. The index is now down 2.34% for the month and is down 2.09% for the year. Friday saw gains in most commodities other than coffee after earlier pullbacks in the week.

Bond markets continue to show strength. US Treasury yields have reached historic lows with the 10-year yield falling to 2.028% on Thursday morning before closing Friday at 2.066%. The fall in Treasury yields can be attributed to a combination of lousy US economic data and Fed Chairman Bernanke's stance taken the previous week where he said that the Fed would keep short-term interest rates at near 0% for the next two years. Long-term bonds of all types are leading current bond category performance along with some international bonds. For the week, the Barclays US Aggregate Bond Index rose 0.39% and is now up 6.86% for the year.

WHICH WAY SHOULD I LOOK?

One of the great paradoxes of investing is that most data and commentary is backward looking while markets look forward.

Key economic data such as housing starts, jobless claims, unemployment rates, consumer sentiment, and Gross Domestic Product (GDP) data are all backward looking. Telling us what has happened, not what is going to happen. One of the reasons the markets reacted so negatively on Thursday when the Philadelphia Federal Reserve released its survey of industrial production was because this report is forward-looking by about three weeks and is forecasting a significant contraction in industrial output--especially when compared to recent data.

A not very scientific indicator of investor sentiment can be found on the covers of magazines. For example, this August 6th cover of The Economist can only be described as fearful and designed to sow doubt into the minds of readers about the future of economic growth. Dorsey Wright & Associates has done an interesting study that shows that more times than not, the gloomier magazine covers are, the closer we are to completing a downturn.

An indication of how investors are reacting to headlines like the one from the cover of The Economist comes from a story in the Personal Finance section of The Wall Street Journal this weekend titled, "Portrait of the Angry Investor." This story states that, "people seem to feel like bystanders in their own financial lives-almost as if they were spectators at a racetrack equally incapable of stopping an impending car crash and of tearing their eyes away from it," and even though most people were spending at least an hour each day following financial news, "...51% of the investors said they hadn't even checked the performance of their own portfolios." I believe the answer to why people are not acting is they simply do not know what action to take. They do not know because they are inundated by conflicting stories and prognostications, which are likely to be based on opinion and the author's personal agenda.

I believe the key to successful investing is to stay focused on what we do know, and I believe the best indication of what the markets are telling us is through the price movements of securities and the changes that can be seen in broader relationships. Relative strength analysis helps to do just that and is the foundation of my Looking Ahead section each week. With that said, let's look at what the data is showing this weekend.

LOOKING AHEAD

Following the upheaval in the markets this past month there have been notable changes to the major market indicators that I follow. First, the market is on defense. I know this because the New York Stock Exchange Bullish Percent (NYSEBP) is now retreating and at the very depressed level of 21.41%. For my long-term readers you know that any level below 30% is considered less risky for investors. Think of the example of crossing a narrow beam 4 feet off the ground compared to 40 feet. If you fall from a very low level, the risk of serious injury is much less. Today we are 4 feet off the ground. However, the chart is still retreating (in a column of O's), so it is not necessarily the time to increase stock exposure now.

Looking at the five major asset categories, Commodities is first, followed by US Stocks, Foreign Currency, Fixed Income, and International Stocks. I focus my investment activity on the top two asset categories; however, both Commodities and US Stocks fail the Cash bogey check meaning, historically, Cash has outperformed in the near-term. Therefore, I have used this signal to suggest that investors consider trimming their stock and commodity holdings by retaining only the strongest relative strength investments. Currencies have pushed up from last place in the last two weeks and the Swiss Franc, Japanese Yen, and Brazilian Real have risen rapidly. Fixed Income has always been part of my portfolio recommendations and this asset class continues to hold steady for now. With the International Stock asset category falling to last place, I generally do not favor much exposure to this asset category, but if you do, Emerging Asian-Pacific is now the strongest international sector on a relative strength basis.

Within the Commodity asset class, Precious Metals and Agriculture sectors are the strongest. Among US Stocks, middle capitalization stocks have replaced small capitalization stocks as the favored market cap segment, while growth and equal-weighted indexes continue to maintain their relative strength. There are no sectors that are favored for over-weighting; however, I maintain my position that US Financials should be avoided. Within Fixed Income, the US corporate bond sector was just replaced by the Inflation Protection sector, and International Bonds continue to remain the other favored bond sector.

I want to conclude with a couple of additional comments. First, if you are not comfortable with the markets, consider moving some of your assets to cash. As I said last week, the worst thing that may happen is that you might miss part of the rebound should that happen, but if the markets continue to fall; you may not be any worse off. Second, I am exploring selective purchases of several large, dividend-yielding companies.

Notable economic data releases for the coming week include new home sales Tuesday, durable goods orders on Wednesday, the regular Thursday morning release of initial jobless claims, and the first revision of the 2nd Quarter GDP data on Friday. The GDP number will be especially important to investors.

Finally, because each investor is uniquely different in their goals, risk tolerance, and economic status, I always prefer to have a one-on-one conversation to address your unique characteristics so please give me a call if you have any questions or comments.

Please note that I will be traveling next weekend and will not publish a Weekly Update.

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

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

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

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

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

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

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

Sincerely,

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

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

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

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

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

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

Tuesday, August 16, 2011

Markets were subjected to historic volatility this past week as investors reacted to every piece of news crossing the wire.

Following the historic downgrading of the US credit rating by Standard & Poor's, the Dow Jones Industrial Average (DJIA) experienced a first-ever four consecutive days of 400+ point moves leaving the DJIA down 1.53% for the week closing Friday at 11,269.02. The S&P 500 lost 21 points (-1.72%) to finish at 1178.81, and the Russell 2000 gave back another 17 points (-2.40%) closing at 697.50. For the first two weeks of August the DJIA is down 7.20%, the S&P 500 is down 8.78%, and the Russell 2000 is down 12.49%. This same order holds for the year as the DJIA is off 2.66%, the S&P 500 is down 6.27%, and the Russell 2000 is down 10.99%.

Real Estate and Materials were both positive last week while Utilities, Health Care, and Information Technology were down less than 1% and easily outperformed the major indexes. The Financials sector was clearly the worst performing sector losing over 4%. For the year, Consumer Staples, Utilities, Health Care, Real Estate, and Energy have all outperformed the DJIA, with the top three sectors holding onto positive returns for the year. With last week's performance, Financials are now down over 18% for the year and this sector has distanced itself from the next two worst performers (Industrials and Materials) by nearly 8% and 10% respectively.

The MSCI EAFE Index fell a modest 0.97% last week buoyed slightly by news that the European Central Bank (ECB) began purchasing Spanish and Italian bonds to help stabilize European bond markets. This move is akin to the US Federal Reserve buying Treasuries and helped strengthen European bonds. US investors would recognize this effort by the ECB as a variation of our own Quantitative Easing (QE). This move has drawn sharp criticism by many in Europe who see the ECB's role strictly as an inflation fighter. It also underscores how serious the problems within the European credit markets are. Compounding this worry is the general slowdown of European economies which has mirrored our slowdown here.

The Euro has continued moving incrementally up and down against the US dollar. Last week it fell just four-tenths of a cent to close at $1.424. With both the US and Europe sharing its own sets of concerns, investors are not voting one way or the other in favor of either currency.

Gold surged to a record high mid-day on Thursday (August 11th) when the price of gold briefly exceeded $1817 per ounce before pulling back to close on Friday at $1742.60 up $90.80 (5.5%) for the week. Gold is now up $322.90 (22.74%) for the year and is clearly outperforming all other assets so far in 2011. This surge in gold prices clearly signals that investors are looking for safety in an increasingly uncertain world as politicians struggle to counter the growing lack of confidence of leadership the world over (I will discuss this issue further in the next section). Oil prices continued to fall as investors worried about weakening global economies resulting in a drop of $1.50 (-1.73%) per barrel of West Texas Intermediate. WTI Oil closed Friday at $85.38 per barrel.

The Dow Jones UBS Commodity Index, which measures a broad basket of commodities, gained 0.56% last week on the back of surging gold prices. The index is now down 3.55% for the month and is down 3.30% for the year. Grains were given a boost on Friday when the US Agriculture Department cut forecasts for corn production by 4% due to the pervasive heat wave in the Midwest. Volatility is a common aspect of commodity investing and recent gyrations are more typical than not.

Bond markets generally posted gains again last week as US interest rates continued to fall. The 10-year US Treasury rate fell to 2.249% from the previous week's close of 2.798%. For the second week in a row, US Treasuries, including Treasury Inflation Protection Notes (TIPs), extended gains and was the best performing sector in the bond market. High yield bonds continued to sell-off and is now the worst performing sector in the bond market. As investors grow concerned about the economy they tend to withdraw investments in less creditworthy companies pushing down prices and increasing yields which help explains the poor performance of high yield bonds.

STOP THE WORLD--I WANT TO GET OFF!

While most of you probably do not recall the 1961 musical from which this section takes its title, I would guess that after the past three weeks in the markets you have probably had thoughts along this line.

It is easy to be caught up in the moment because recently the moments have been more dramatic than any time since the market crash of 2008, but I want to step back and look at the bigger picture and try to assess why the markets have entered into this period of hyper-volatility.

There are many, many different factors that enter into the investment equation today: European banking problems, Greece, slowing Gross Domestic Product (GDP) growth here and abroad, political gridlock in Washington, debt ceiling debates, the housing crisis, unemployment, and on and on. I believe that many of these issues are really a byproduct of what lies at the heart of the matter and that is the US and global economies have reached their borrowing limits and they are beginning to deleverage. Deleverage is just a fancy way of saying we have too much debt and we have to start paying that debt down. Think about what happens in your household when it is time to pay off some bills. You stop or reduce your discretionary spending so you can free up cash to tackle the bills. When this scenario is repeated in other households around the country, you get economic slowdown. Besides households, governments have also reached the breaking point of too much debt and you are seeing austerity measures being implemented by many governments, especially in Europe, causing growth rates to slow dramatically.

The trouble is that even though you are doing the right thing economically and for the long-term, you are creating problems today. These are the problems that make the headlines today like high unemployment, slowing GDPs, and an unresponsive housing market. Now this is where it gets dicey. We expect our political leaders to help get us through this cycle of deleveraging with the least amount of pain possible. But are they up to the task? Do we have the confidence that these politicians and government officials, both here and abroad, will be able to create sound monetary and fiscal policies that work, which are coordinated with the rest of the major global economies, and prevent a second economic crisis from returning with potentially greater economic harm? Answering this question correctly will direct your investment decisions for now and into the months ahead.

LOOKING AHEAD

I continue to stress the importance of paying attention to two key indicators: the yield on the 10-year US Treasury note and the price of gold to help look for answers. The 10-year yield tells you the general consensus that investors have on the strength of the US economy, while the price of gold indicates investor confidence in our political leaders to solve and evolve a restructured economic future. Right now the votes are negative in both cases.

Buyers did re-enter the markets on Thursday and Friday offering some hope that investors still have confidence in selected areas within markets, and I am certainly looking for bargains as well. But I believe you must be focused on what you are buying and recognize that risk in the market remains. Because of that risk, I will repeat last week's observation that if you are not comfortable with the volatility and uncertainty in the market, you can increase your allocation to cash and be patient. The worst aspect of holding cash in the near-term is that you may miss some of the upside if the market does rebound; but if the markets resume their downward fall, you will preserve your assets.

Among the five major asset classes I follow: US Equities, International Equities, Bonds, Foreign Currencies, and Commodities; International Equities has fallen from third to fifth place reinforcing my opinion that International Equities should be avoided or trimmed from portfolios. The rise in Foreign Currencies to third place is a noteworthy trend since this asset category has been in the fifth and last position for several years. I will be carefully evaluating this category and may offer some investment ideas next week if I find some compelling opportunities. While Commodities and US Equities still hold the first and second positions, they fail what I call the cash bogey check. When an investment fails the cash bogey check it means that cash has a stronger relative strength ranking than the asset category sending me a clear signal to increase cash in my portfolios.

With the recent market sensitivity to news stories, there are a couple of key things to watch for in the coming week:

French President Sarkozy will meet with German Chancellor Merkel in Paris on Tuesday to discuss the deepening concern that debt problems may be spreading to Italy. As the leader of the Euro Zones strongest economy, Merkel is under tremendous pressure to work out a solution without committing German taxpayers to subsidizing all of southern Europe's free-spending governments. Compounding the challenges, France's economic growth was 0% in the second quarter and industrial output is falling across Europe.

On Tuesday morning, Housing Starts and Industrial Production data will be released followed by Thursday morning's releases which will include weekly first time Jobless Claims, the Consumer Price Index, and Existing Home Sales. All eyes will be focused on indications of economic growth or further slowdowns.

The tug of war between bulls and bears will likely continue this week but it is hard to imagine that the extreme swings we observed in the market last week will be repeated. Please reach out to me if you have any questions or comments about your portfolios or the markets in general.

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.

Wednesday, August 10, 2011

US and global stock markets saw a second consecutive week of sell-offs as investors digested the details of the debt ceiling compromise, poor economic data, and Europe's continued struggles to contain Greece's debt crisis. All major stock indexes are now trading in negative territory for the year. Additionally, there have been major changes to the technical indicators I follow.

After markets closed on Friday, Standard & Poor's downgraded the US's AAA rating to AA+. This may have serious consequences for investors in the coming weeks.

The Dow Jones Industrial Average (DJIA) lost 699 points (-5.75%), the S&P 500 shed 93 points (-7.19%), and the Russell 2000 lost 82 points (-10.34%). These losses surpassed last week's year-worst data and then some. Thursday's major sell-off was the worst one-day drop by the S&P 500 (-4.78%) since April 29, 2009's 4.32% drop. For the year, the DJIA is now down 1.15 %, the S&P 500 is down 4.63%, and the Russell 2000 is down 8.81%.

Every sector was down again last week. Consumer Staples was the best performing sector losing just under 3% followed by Utilities and Telecom. Real Estate, Energy and Materials were the worst all losing between 10% and 12%. For the year, Consumer Staples, Utilities, Health Care, and Energy are top performing sectors and remain positive for 2011.

International markets followed US markets with significant sell-offs. The MSCI EAFE Index dropped 9.92% and is now down 8.75% for the year. No region of the world was spared the sell-off, but Europe was by far the poorest regional performer with losses averaging around 11%. It is not certain that the European Union will in fact contain Greece's debt crisis and prevent its spread to Spain and Italy.

The Euro has been moving in incrementally up and down against the US dollar. Last week it fell just over a penny to close at $1.428 and is up nine cents for the year. The real action has been the Japanese Yen which has risen to the point that the Japanese government sold Yen to keep that currency from rising too much and hurting that countries critical export trade. I am not terribly impressed with most of the world's major currencies as they have all been moving down more or less together.

Gold continued to be the investment of last resort as it posted a $20.80 (1.28%) gain to close the week at $1651.80, and this precious metal is now up 16.35% for the year. Oil pulled back dramatically losing $8.98 (-9.367%) per barrel reflecting serious concerns over the strength of the global economy. Oil investors are worried about the strength of the global economy pushing demand down, and as the US dollar has strengthened recently, this has added an additional headwind to this and other commodities.

The Dow Jones UBS Commodity Index, which measures a broad basket of equities, fell 4.09% last week and is now down 3.84% for the year. This index is heavily weighted in energy and precious metals with oil being the primary cause of the pullback, however, other economically sensitive commodities such as copper will also feel the pressures of a weakening global market cycle.

The bond markets gained last week as investors looked for a place to hide as stock markets sold off. This is an important and positive sign because the bond market is functioning normally as compared to 2008. The Barclays Aggregate US Bond Index gained a solid 0.82% following last week's gain of 0.71%. For the year, the Barclays is up 5.52%. The 10-year US Treasury yield fell substantially to 2.566% at close on Friday which marks the lowest close since early November 2010. The real question will be what will happen to bond yields in light of S&P's US debt downgrade. The best performing bonds were the more volatile longer-term maturities while high yield and preferreds were the worst.

THE MARKETS ARE IN CORRECTION MODE

Following the past two weeks, virtually every stock market is now in corrective mode (greater than a 10% drop from recent highs). The reasons for this are numerous and I have discussed all of these issues in detail over the past weeks and months. At the core of all of this is a US economy

that simply is not growing. Overlay this with the debate in Washington about the growing US debt burden and Europe's turmoil as it struggles with fears that Spain and Italy are now at risk with bond investors, and you have a real mess. As if this is not enough to worry investors, Standard & Poor's announced on Friday evening that they were cutting the US debt rating one notch from the coveted AAA to AA+ (same as Spain and China).

Beyond the highly visible and significant selloff in markets, there has been a major change to my technical indicators. As I begin this discussion of the technicals, please keep in mind that these technicals are price-based and I assume that every bit of critical information about a stock or a market is reflected in the price. There are five major asset classes which I follow: US stocks, International stocks, Commodities, Bonds, and Currencies. I rank these asset categories from top to bottom and then evaluate each category with its relative performance against cash. The current order of the asset classes is: Commodities, US stocks, International stocks, Currencies, and Bonds. This order has not changed recently, however, last week each of the top three categories are now failing the relative strength test against cash.

What this means to you is that if you are risk adverse, meaning that you are very uncomfortable losing money, you should consider selling or reducing your stock holdings in these top three categories. If you are risk tolerant, you may consider maintaining your investments for now. Each investor is different and you should make decisions based on your individual risk tolerance and other factors such as tax gains or losses.

LOOKING AHEAD

The talking heads are all a-twitter with the current turmoil in the markets. If you are watching or reading the many stories in the media you are probably shaking your head about how so many people can have so many different opinions about why the markets are selling off and what you should do with your money. Let me begin this Looking Ahead segment saying as I have many times: I do not know what the markets are going to do tomorrow or this week, or even next month. What I do know is what my technical indicators are seeing in the markets' behavior.

Let me use an example to help explain why I look at my technical data to interpret what is happening in the markets and why I consider the opinions of others to be of secondary importance. One of the greatest American physicists, Richard Feynmen once said, "The first principle is that you must not fool yourself, and you are the easiest person to fool." He was admonishing his fellow scientists to not permit their personal expectations/biases from influencing their interpretations of data resulting in incorrect conclusions. This personal bias is also referred to as cognitive bias-when we look for evidence that confirms our existing opinion, and tend to ignore, dismiss, or refuse to look for evidence that would contradict what we already believe. Personal bias can also be heavily influenced by recent events-think 2008. Market prices provide great insight into the underlying reality. If markets are not doing what you think they should, the market is probably right and you are probably letting confirmation bias fool you. (Prices reflect the current expectations around a situation-not necessarily the correct expectations. If circumstances cause expectations to change, you can expect that market prices could have quite an adjustment too.)

With a lot of smart people wagering significant sums of money on outcomes, prices are often our best guide to the probable future. Prices are going to reflect reality as best it can be determined. So my focus is always on the price movements of stocks, bonds, and asset categories, not what some talking head is saying in the media.

As I prepare this Weekly Update late on Sunday evening (August 7th) Asian markets have opened to the downside and US stock futures are reflecting a lower opening. It is impossible to tell what will actually happen this coming week. It does not look good for the start of the week, but it is hard to say if this selling pressure will continue or abate. My techncials suggest that risk is high and caution is appropriate at this point in time.

Gold prices are soaring to nearly $1700 an ounce indicating the level of uncertainty in the markets. Through Friday, the 10-year US Treasury yield was pushing down to near record lows. Unemployment numbers remain unacceptable and there are signs that consumer spending is weakening. Taken together, this data is suggesting that the economy is in for a continued rough patch. I believe the real wild card here could be the intervention by the Federal Reserve. The Fed's Open Market Committee meets this coming week and they could follow that with some sort of an announcement that might move markets. The Chairman, Mr. Bernanke, is also speaking at the Fed's annual Jackson Hole conference where he could suggest new policies much as he did last year when he unveiled Quantitative Easing II (QE II) that gave the markets a shot in the arm. Unfortunately, there are fewer options available to Mr. Bernanke than last year.

So if you have not reviewed your portfolio do so with a critical eye. If you are uncomfortable, make some adjustments.

I continue to prefer Commodities and US stocks with an understanding that cash is outperforming on a relative strength basis in the near-term. I am avoiding international stocks except for the strongest technical positions. I continue to like US corporate and international bonds, and commodities are outperforming most other investments on a relative basis. With US Treasury yields continuing at record lows, this suggests that the US Treasury market is not going to suddenly sell-off even in light of the S&P downgrade.

Volatility is likely to continue into this week. This is the sign of markets that are uncertain about what is happening.

These continue to be challenging times. The markets are very concerned about many issues with outcomes undetermined. Looking back in history, it is akin to the weeks following Pearl Harbor...the news was terrible, there was no strategy in place to deal with all the events happening around the world, and Americans were realizing that there would be many sacrifices ahead before normality would return. Today we need a coherent strategy. We need to look at events and figure out how to deal with how we go forward, not playing blame games on why we are here. And we need leadership from the White House, Congress, and business to come together to get this economy going.

Whatever happens, you must take action and have a strategy to invest in these difficult times even if our national leaders do not. I believe that following the tenets of point and figure charting and relative strength analysis give you the tools necessary to develop that coherent strategy necessary to move forward if you are not already using them with me.

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

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

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

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

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

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

Sincerely,

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

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

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

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

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

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

Thursday, August 4, 2011

Markets here and abroad sold off this past week on news of the continued political stand-off in Washington and the absolutely terrible US Gross Domestic Product (GDP) data.

For the week, the Dow Jones Industrial Average (DJIA) lost 538 points (-4.24%), the S&P 500 shed 53 points (-3.92%), and the Russell 2000 retreated 45 points (-5.32%). These losses were the worst one week drops so far in 2011 for each respective index. For the month of July, the DJIA finished down 2.27%, the S&P 500 was down 2.15%, and the Russell 2000 was down 3.67%. For the year, each of these major indexes is positive with the DJIA leading gaining 4.89%, the S&P 500 is up 2.75%, and the Russell 2000 is up 1.71%. Since the end of the February, the markets have generally drifted downward with increasing volatility.

Every sector was down last week. The Utilities sector was the best performer losing just over 2% followed by Consumer Staples and Real Estate. Industrials was the worst performing sector losing over 6% followed by Health Care, and Telecom. For 2011 the top three performing sectors are Energy, Real Estate, and Health Care. The bottom three are Financials, Industrials, and Materials. The Financial sector is leading all sectors to the downside with a loss of over 5%.

International markets were also down but not as severely as US markets. The MSCI EAFE Index dropped 1.46% for the week and is up 1.3% for the year. Persistent worries about the continued spread of the debt crisis beyond Greece's borders to nearby Italy and Spain continue to weigh on European markets. The performance gap between developed markets and emerging markets remains fairly narrow with about a 2% differential favoring developed markets.

The Euro added less than a penny against the US dollar last week to close at $1.440. For the month the Euro lost one cent and for the year is up just over ten cents (7.71%). The Japanese Yen and Swiss Franc have been the primary beneficiaries of investors leaving the US dollar and Euro over the growing uncertainty in the US and Europe with the Yen and Franc gaining 12% and 33% respectively against the US dollar in the past 12-months.

Gold gained $28.30 (1.77%) last week to close at $1631.00 which completes a nearly 9% rise in price for July and a 14.88% increase for 2011. The increase in gold prices reflects the uncertainty swirling in the markets. Simply put, the greater the uncertainty, the higher the price of gold. I use gold prices as my primary barometer to gauge fear and uncertainty in global markets.

WTI oil dropped $3.85 (-3.86%) per barrel but remains up $0.44 (0.46%) for the month of July and up $4.64 (5.09%) for the year closing Friday at $95.86. Oil prices tend to reflect anticipated supply and demand views by investors and with the US GDP numbers so poor, the markets are anticipating a drop in demand for now. One interesting fact to the contrary was reported this weekend in The Wall Street Journal whichwas that the number of fully loaded oil tankers in the US Gulf of Mexico has increased dramatically recently suggesting that the owners believe the price of oil will continue upwards after the Strategic Petroleum Reserve release has moved through the market. By holding oil in tankers offshore , the owners are betting that by delaying delivery of the physical oil will get them a better price even considering the costs of holding a ship and crew at anchor offshore.

The Dow Jones UBS Commodity Index measuring a broad basket of commodities was down 1.49% for the week but was up 2.96% for July. Oil had the most downward influence on the Dow Jones UBS Commodity Index last week which was partially offset by precious metals.

The bond markets have remained subdued during the frenzy of political debates in Washington. The Barclays Aggregate US Bond Index gained 0.71% last week and is now up 4.65% for the year. The 10-year US Treasury fell to 2.798% on Friday reflecting a more negative economic outlook in the US, not a fear of default. With the rather strong drop in US Treasury yields, longer-term Treasuries were the best performing part of the bond market. Treasury Inflation Protection Notes (TIPs) were also one of the strongest performing sectors. Preferreds and high yield bonds were the worst performers.

ARE WE FOCUSED ON THE CORRECT PROBLEM?

The 24-hour news cycle has been reporting on the debt ceiling "crisis" non-stop this past week. I think every senator and representative in Congress has been interviewed at least once on TV this week and the talking heads are debating how severe the market turmoil will be if an agreement is not reached. Let me suggest to you that the more substantial problem is the abysmal performance of the US economy not what Washington does about the current debt ceiling negotiations.

In case you missed the report (and it would have been easy given how little coverage there was in the news), the first report of the 2nd Quarter GDP came in a 1.3% and the 1st Quarter GDP growth was revised downward from 1.9% to 0.4%. Even the most bearish forecasters did not see this coming. When you couple this with a 9.2% unemployment rate, the market reaction was predictable. I am not suggesting that the debate in Congress is not important, I think it is; however, the bond market has been signaling that all of this kabuki theater in Washington is much ado about nothing. The interest rate on the 10-year US Treasury is trading at the lowest level in 2011 which is not the behavior of investors you would expect if they were anticipating impending crisis. Compare our 10-year rate to Greece's 14.97% (as of market close on Friday); those are bonds that are priced for default.

The news early Sunday evening (July 31st) suggests that progress is being made on a debt ceiling compromise with, predictably, lots of complaining from both sides. The markets will undoubtedly respond positively upon the news on Monday, but do not lose focus on the bigger economic picture. And this is where our attention should be. The voters will decide in 2012 about how they want this country to move in the future, but investors are looking at the health of the economy and determining if companies are properly priced given their outlook.

LOOKING AHEAD

A debt deal is likely to come forward and will continue to occupy most of the media's attention as they try to determine who won and who lost the political battle. Investors will look at the deal and decide if it is meaningful and actually cuts spending or if it is just more of same rubbish that has been the hallmark of our Washington politicians in the past quarter century. So stay focused on the gold and bond markets. They will tell you what investors think.

Gold has risen to record highs as investors worry about many governments' abilities to manage their finances. How much, if any, of a pull back in the price of gold will signal confidence in political deal making and discipline both here and abroad. US Treasuries will focus not just on the debt ceiling debate, but on the strength of the economy.

There are two key economic reports due out this coming week. On Monday is the release of the ISM Manufacturing data and Thursday is the weekly Jobless Claims report. I highlight these two reports because they reflect the degree of growth prospects for the economy.

Looking at my technical analysis, I sound much like a broken record. Small and mid-capitalization stocks are preferred over large, equal-weighted indexes over capitalization weighted. US stocks and commodities are preferred over international stocks. Bonds are not favored; however, they have delivered steady returns in what is becoming an increasingly volatile year. My sector analysis has likewise not changed. Energy and Health Care are preferred along with Consumer Noncyclical. I continue to avoid the Financial sector.

Within Commodities I continue to favor Precious Metals and Energy.

Within the bond category I prefer US corporates and international. Treasury Inflation Protection Notes are also favored.

Volatility has returned to the markets. After many gyrations over the past several months, we have essentially moved sideways. You may be questioning why I have consistently favored small and mid-capitalization stocks over large caps even as the DJIA has outperformed the Russell 2000 in 2011. The answer is time horizon. Over the past 12-months the Russell 2000 is up 22.5% compared to the DJIA which is up 16.0%. It will require more than a short-term move in the markets before I make a change to my guidance.

These are challenging times and I share your concerns over what is happening here and abroad; however, I firmly believe that having the proper tools to help guide you through these times is more necessary than ever.

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.