Wednesday, May 30, 2012



Markets paused from the May decline last week and most domestic stock indices posted gains for the first time in four weeks. Worries over Greece and its possible withdrawal from the European Union (EU) and the Euro subsided briefly with Greek elections still more than a month away on June 17th. However, Spain continues to worry investors especially after the Spanish government's announcement last Friday that they were providing Spain's third-largest bank, Bankia, SA, with €19 billion ($23.8 billion) in capital to save that bank. Such a large injection of capital

has raised fears that Spain may have to make similar moves for other banks further stretching the Spanish government's balance sheet. In European trading on Memorial Day (May 28, 2012) the Spanish 10-year yield jumped to a multi-month high of 6.479%. Here in the United States, the major economic reports of the week generally came in line with consensus showing a very modest economic recovery underway-no good news but no terrible news either. Finally, a survey released over the past weekend shows the pro-bailout parties in Greece gaining strength in the polls boosting hopes that the Greeks are not supporting withdrawal from the EU and a return to the Drachma. This report helped firm the Euro that has fallen over the past four weeks.

For the week, the Dow Jones Industrial Average (DJIA) posted a gain of 86 points (0.69%) while the S&P 500 added 1.7%, the Russell 2000 was up 2.6%, and the NASDAQ jumped 2.1%. May, however has been a tough month with all the major indexes posting significant declines. The DJIA is down 5.7%, the S&P 500 is down 5.7%, the Russell 2000 is down 6.2%, and the NASDAQ is down 6.7%. For the year the DJIA is up 1.9%, the S&P 500 is up 4.8%, the Russell 2000 is up 3.4%, and the NASDAQ is up 8.9%.

All of the major economic sectors were positive last week led by Materials, Consumer Discretionary, Industrials, and Real Estate. Telecom, Utilities, and Consumer Staples were the weakest sectors for the week with only Telecom not outperforming the DJIA. Twenty-one weeks through 2012, Consumer Discretionary, Information Technology, and Real Estate are the top three performing major economic sectors while Energy, Utilities, and Telecom are the bottom three with Energy and Utilities negative for 2012.
As I have already noted, Europe is a complete mess. The EU is wracked by high unemployment, political uncertainty, and slowing economic output. The debate between austerity and Keynesian spending to stimulate growth rages on with no clear winner. Not surprisingly, the equity markets reflect these conditions. The MSCI (EAFE) index fell another 0.5% last week and is now down 10.9% for the month, and down 4.4% for the year. After a strong start, the Emerging Market sector has given back all of its gains for the year with a loss of 12.4% in May leaving this volatile sector down 2.1% for the year. The best performing region globally has been the Americas region that has lost 6.6% for the month, but remains positive by 3.6% for the year.

The Euro and other major foreign currencies continue to fall against the US dollar as investors seek safety in the US currency. The Euro closed Friday at $1.252 down over seven cents from the start of the month, and is now down 4.2 cents for the year. The US dollar is the go-to currency as worries increase abroad, so look no further than the US Dollar Index to gage fears in global markets. The US Dollar Index has gained 4.8% in May and is up 2.8% in 2012.

Commodities continue to struggle under the weight of a strengthening US dollar and a weakening global economy. The broad basket Dow Jones UBS Commodity Index fell 2.5% last week and is now down 5.8% for the year. China, which has been having a poor year by Chinese standards, has not been in the headlines ahead of Greece and Spain, but a drop in demand by the Chinese has certainly influenced global commodity prices. For the week, gold fell just over 2% to close at $1559.80 and is down 6.4% for the month, and 0.4% for the year. Oil has really pulled back losing 0.8% last week to close at $90.72. For the month, oil has fallen 13.4%, and is now down 8.2% for the year. Oil has held at the $90/barrel price, and I believe this remains an important support level.

Bond markets broke a 9-week positive run as the Barclays Aggregate Bond Index posted a drop of 0.2%. It is too early to read too much into this trend break, but it bears watching. US Treasury yields rose (prices down) with the 10-year and 30-year rates closing Friday at 1.738% and 2.842% respectively. These rates remain very low and reflect the fear most investors currently have. All but Spanish yields fell last week with the German 10-year Bund closing Friday at 1.37%. Interest rates continue to be a barometer of investor's fear levels, and the heavy hand of central banks makes it a difficult asset category to figure out. For the week, preferreds and high yield municipals were the best performing bond sectors while extended duration government and corporate bonds the weakest. For the year, preferreds and municipal high yield are the best performing bond sectors with high yield and short duration (domestic and international) the worst.

THE MARKETS ARE WASHED OUT


The media translates oversold markets into interesting headlines. For example, the Financial Times included the headline last Thursday questioning whether stocks will continue as a viable investment in the future. Wow. That is an amazing concept. The past decade's poor performance and volatility of stocks has certainly frustrated investors and may well continue to do so for the foreseeable future, however, this does not mean stocks are done being a good investment. It is also not the first time the media has taken us down this road. Look at the BusinessWeek cover from

August 13, 1979. Did this headline mark the bottom of the market? No, but it did come just a few short years ahead of one of the greatest bull markets in history.

I believe we are all influenced more by recent events rather than past historical occurrences. I remember clearly how the Great Depression affected my grandparents and their subsequent behavior in the years following those difficult times. Yet to most of us, the Depression is just another chapter in a history text. Today, however, we are all keenly aware of first the dot.com implosion in the markets early in the 2000's, and then the Great Recession in 2008 when markets dropped to levels not seen in decades. So it is perfectly natural for most of us to fear the uncertainly found in today's markets, but that fear should not prevent you from making smart investment decisions. Let us look at where we are today.

I have discussed the concept of overbought or oversold markets before, but let me quickly review. The price of an investment (or an index) is tracked on a daily basis and the most recent 10-week price history is plotted by Dorsey Wright & Associates (DWA) on a statistical bell curve. Three standard deviations, by definition, account for 99.7% of all prices above and below the mean during the 10-week period. If the investment price falls to the far left of the bell curve (three standard deviations) it is considered 100% oversold, however, if the price continues to fall (moves further left on the curve) it can reach even higher oversold percentages. The converse is true for rising prices. The DJIA and S&P 500 indexes are currently oversold by about 63%...high, but not extreme.

When looking at historical patterns, DWA has drawn several conclusions. First, prices do not remain oversold forever and typically rebound at some point. Second, when prices become oversold, especially by a wide margin, it can be a positive signal to come back into the market. Looking at major market segments the following conclusions can be taken from the current DWA data: bonds are somewhat overbought while international equity investments, especially Emerging Markets, are at very oversold levels; and US equities are moderately oversold. Remember too that summer is historically a weak time of year, and the New York Stock Exchange Bullish Percent remains in a defensive posture falling for a tenth consecutive week to close Friday at 48.52. All this information together continues to signal caution, but risk levels are falling.

LOOKING AHEAD

As much as all of us are tired of hearing news about Europe, I am sorry to say that I expect Europe to continue to dominate the news in the coming week. While the future of Greece will garner the majority of headlines, I believe the most important story will be what happens to Spain and the recapitalization of its banks. Spain is a much, much larger economy than Greece, and the Europeans will be hard pressed to bailout Spain should it come down to that.


Interest rates will continue to be an important indicator of investor sentiment. Higher rates in Spain, I believe, will signal growing risk in that country's finances, while falling interest rates elsewhere will signal a gloomy outlook by investors. Historically low interest rates mean that investors are afraid and lack confidence in the longer-term outlook of the economy. The Euro and the US Dollar Index also will continue to signal the appetite for risk in the markets. A rising Euro and falling US Dollar Index will be signalling risk is back, while the converse is true.

Thursday and Friday of this week will offer a host of critical economic reports. Thursday will have the ususal Initial Jobless Claims report (no change expected from last week), but also the first revision of the Gross Domestic Product (GDP) for the first quarter of 2012. Consensus calls for a revision downward from 2.1% to 1.9%. Friday's reports include the Employment Situation for May and new jobs are expected to grow by 150,000 compared to last month's increase of just 115,000. The unemployment rate is expected to remain steady at 8.1%. Personal income is expected to remain steady, while the ISM Manufacturing Index is expected to contract very slightly. All are key reports and any significant departure from the consensus may well move markets either up or down.

The major analysis provided by DWA about the current status of the markets show that US stocks clearly remain the favored investment of the five major asset categories. There has been constant reshuffling of the four remaining asset categories. As of Friday, Bonds and Currencies occupy the second and third positions followed by Commodities and International stocks. Commodities and International stocks are very weak at the current time and I am avoiding for now. Within the US stock asset category, mid capitalization growth stocks are favored as are equal-weighted investments over capitalization-weighted indexes. Among the major economic sectors, relative strength analysis favors Consumer Discretionary, Information Technology, and Real Estate.

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 financial events and situations.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, including international economic, political and regulatory developments.

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.

TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

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 ®, CRPC ®
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.

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.

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



Thursday, May 24, 2012



This week's Market Update will be abbreviated due to my travel over the past weekend.

Selling across all markets accelerated this past week as the world watches the Greek government implode. This little, and historically poorly run country in financial terms, has caused markets to react negatively to the news of a possible exit from the Euro currency and European Union. The nervousness by investors has more to do with two key points: first, if Greece can go-who is next? Second, once the spendthrift Greeks are dispatched, who will be next? Spain and Italy are top candidates. These countries have large economies and many pundits do not believe that the EU has the assets for a bailout of these two weak economies.

The other drama that is playing out in Europe and here in the United States concerns the strength of German Chancellor Angela Merkel's commitment to austerity in the EU. Ms. Merkel is coming under increasing pressure from all sides, including President Obama, to loosen up the constraints on the European Central Bank (ECB) and get money flowing directly from the ECB to the sovereign governments within the EU (through the creation of Euro Bonds). The only problem, and one that the German's keep reminding everyone about, is that the treaty forming the EU does not permit direct payments to sovereign governments. So as Greece remains in chaos and many of the Europeans begin to tire of austerity cuts, and the Germans continue to ask other EU countries to undertake meaningful fiscal reforms, the rest of us are left wondering how much collateral damage will be extracted on the rest of the world. Unfortunately, there does not seem to be any consensus on this key issue so we will have to continue to observe events as they unfold and the market's reactions to those events.


"You can observe a lot by watching," is one of my favorite Yogi Berra quotes. For those of you who are not baseball fans, Yogi was a catcher for the New York Yankees from 1946 until 1963 and is one of the most beloved and successful ball players in baseball history. As an aside, Yogi began his professional baseball career playing here in Hampton Roads for the Norfolk Tars in 1942. Yogi's quote is very profound and one that I believe in regarding financial markets. I am watching interest rates, the strength of the US dollar, the New York Stock Exchange Bullish Percent (NYSEBP), and the Dorsey Wright Dynamic Asset Level Investing (D.A.L.I.)® indicators.

Interest rates have fallen sharply over the past month or so. The US Treasury 10-year yield closed Friday at 1.714%. The most recent inflation data from the Bureau of Labor Statistics showed the current annualized rate at 2.30% meaning that investors are receiving a negative 0.589% real return on their investment. That is a very risk adverse trade and indicates that parking money with a nominal return is more important to investors than making money. The US dollar has risen steadily since the start of the month. I believe that a rising US dollar is a risk adverse trade and global investors are buying US dollars for safety. This means that US exports become more expensive, commodities become more expensive, and returns of foreign stocks are impaired by the currency conversion. The NYSEBP continues to fall meaning that fewer stocks have positive momentum for now. I will be looking for that to change. Finally, the five major asset categories that I track using D.A.L.I. have been jumping around with the exception of US stocks. The US equities category has been the consistent leader among the asset classes and is now followed by Bonds, Foreign Currencies, Commodities, and International stocks have fallen to last place.


Times are challenging and the markets reflect this reality. I am watching Europe closely and looking for any significant movement of the key indicators discussed above.

If you have any specific questions, please give me a call. I wish everyone a very Happy Memorial Day and please take a moment to remember the sacrifices made by our men and women in uniform who have made this country great. Our freedom and security are their legacy.

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 financial events and situations.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, including international economic, political and regulatory developments.

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.

TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

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 ®, CRPC ®
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.

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.


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



Monday, May 14, 2012


Equity markets continued to retreat last week as fears grew over Greece's political instability and its possible impact on the European Union, and news that banking stalwart, JP Morgan, has suffered some $2 billion in trading losses with the potential for another $1 billion. Less apparent was Cisco Systems' bad week after announcing relatively low growth projections for the remainder of 2012. The "risk off" trade is in control for now.

The Dow Jones Industrial Average (DJIA) posted its second consecutive worst weekly performance in 2012 losing 1.7% following the previous week's loss of 1.4%. DJIA components Cisco Systems and JP Morgan suffered losses of 13.7% and 11.5% respectively and contributed to much of the DJIA's drop, but they were not alone with 20 of the other 30 companies that comprise the index losing value last week as well. For the year, the DJIA is now up 4.9%. The S&P 500 faired a little better losing 1.2% for the week, while the broader Russell 2000 index posted a loss of just 0.2% and the NASDAQ lost 0.8%. After 19 weeks of trading in 2012 the S&P 500 is up 7.6%, the Russell 2000 is up by 6.6%, and the NASDAQ continues to lead posting a gain of 12.6%.

The European Union (EU) remains under considerable stress as the Greeks appear unable to cobble a coalition together to form a government. Investors worry that the new Greek government will be unable to or unwilling to adhere to austerity measures agreed to with the EU in order to qualify for bailout funds increasing the possibility that Greece may have to exit the EU. France appears, for now, to be transitioning smoothly to a new socialist government; however, Spain is back in the news after the rapid and unexpected nationalization of that country's fourth largest bank. Across the globe, China's economy appears to be slowing and doubts are growing that the Chinese can lift the world economy. For the week, the MSCI EAFE index lost 2.65% with the Asian/Pacific region posting a sharp 4.3% drop. For the year, the MSCI EAFE is now up 2.3% and the Americas region leads all others posting a 7% gain. The Emerging Markets region is up 5.5% as is the Developed Markets region, while the Asia/Pacific region is up 4.4%.

The Euro continued to fall as investors sold Euros and sought safety in the US dollar. The Euro fell nearly two cents (-1.3%) to close Friday at $1.291. The US Dollar Index gained another 1% and is now up 0.15% for the year. Whenever the US dollar has risen over the past year or so, it has generally been accompanied by a falling stock market, falling commodity prices, and falling US interest rates.

Commodities fell again last week over continued worries about the strength of the global recovery and fears of a major setback in the EU pushed the dollar stronger which in turn helps push commodity prices down. The Dow Jones UBS Commodity Index constructed with a broad basket of commodities fell 1.7% following last week's 2.7% drop and the index is now down 4.2% for the year. Gold prices dropped 3.7% and WIT Oil prices fell nearly 3%. Gold's pullback was due in part to the better than expected decline in the Producer Price Index released last Friday helped mostly by falling oil prices. The only bright spots in commodities last week were natural gas, coffee, and cocoa which where were all up around 1%. Metals and agriculture were the weakest commodity sectors for the week.

Bond markets gained for the eighth consecutive week with the Barclays Aggregate Bond Index up a very modest 0.09%. US Treasury yields fell (prices up) last week. The 10-year Treasury interest rate closed Friday at 1.845% to the previous Friday close of 1.876%. The 30-year closed Friday at 3.011% compared to the previous Friday close of 3.071%. Spanish 10-year interest rates pushed over the dangerous 6% level on Friday closing at 6.007%. This is clearly a warning sign that things are not good in Spain today. The French 10-year fell slightly to close Friday at 2.804% suggesting that the credit markets are still waiting to see what newly elected French president, Francois Hollande will actually do. For the week, extended duration US Treasuries and corporate bonds were the best performing bond sector. The worst performing sectors were Emerging market debt and International bonds.


TIME TO SELL?

Two weeks ago the markets looked great. The DJIA had reached a recent multi-year high of 13,360 during the day on May 1st but since then the Dow has fallen 4.0%. Not great, but not terrible or unusual either. In fact, markets do this on a regular basis. The S&P 500 has, on average, had three to four 5%+ corrections every year since 1928 (Source: Ned Davis Research/Wells Fargo). What we have seen most recently is known as a buying climax. A buying climax occurs when a stock (or in this case an index) makes a new yearly high, often early in the week (May 1st was a Tuesday) but then declines and closes down for the week as a whole (-1.44%). A "climax" does not mean that a stock or market (index) has finished a long-term move, or that a change in trend is on the horizon, it is simply an indication that a near-term top has been reached. Sometimes such a near-term top turns into something of long-term relevance, but just as often this is not the case and so we should look no further than our headlights (data) can illuminate.

I follow a series of data provided by Dorsey Wright & Associates (DWA). One of the data points I evaluate is where a stock or index is sitting compared to its ten-week trading band. A trading band is simply a statistical bell curve placed over a stock or index's past ten weeks of price history. If a stock or index is trading in the middle of the trading band it is considered to be fairly priced (the ten-week mean). A stock or index can be considered overbought if it is trading well above the middle of the band, and oversold if it is trading toward the bottom of the ten-week band. For those of you who have a background in statistics, the top and bottom of the bands are three standard deviations each. The bands are recalculated weekly. Today the DJIA is trading just below the middle of its ten-week band. In simple English, the market is just slightly oversold at this time. The S&P 500 is also oversold by about the same amount. This is not the time to panic and sell; however, this is not the time to be complacent either. Review individual positions and watch each closely.

I am not trying to sound pollyannaish about the last two weeks, I see what you see. However, I also see the markets within the context of years of market behavior. There is a lot of risk and uncertainty out there and I am not diminishing those risks. I have not liked international stocks for some time, and US stocks continue to have a very wide lead on all the other four major asset categories evaluated by DWA (Commodities, Bonds, International, and Currencies). Commodities have come under stress as global economic growth weakens and the US dollar strengthens, while Bonds have been a very steady investment so far in 2012. Currencies have done little and the US dollar is consolidating with the Euro.

So I believe that now is not the to time sell stocks, but do keep an eye on the markets to see how they continues to shape up.

LOOKING AHEAD

The Europeans are still fighting the political and economic turmoil that has embraced that part of the world. The Greeks will attempt to form a government, but what form that government takes is completely unknown. Indications are that this new government will not be onboard with the German view of the EU. France is also expected to push back against the Germans. The Spanish government and banks will continue to face very tough choices and the Spaniards may have to continue bailing out their banks. The question that Spain must answer is, "where will the government get the money?" I believe that markets will continue to react to any news or economic data that validate any global growth or contraction.


Following a week with little economic data, there are a fairly large number of important reports due out this week. Tuesday kicks off with April Retail Sales and the April Consumer Price Index (CPI). The consensus for retail sales is to pull back from a gain in March of 0.8% to just 0.1% in April. The CPI is expected to be flat after a 0.3% increase in March. Declining energy prices are a major contributor to this consensus number. April Housing Starts and Industrial Production will be released Wednesday along with the Federal Open Market Committee (FOMC) minutes. Housing starts are expected to rise slightly from March and economists are anticipating a moderate jump in industrial production after a flat March. The FOMC minutes will be scrutinized for any indication that the Federal Reserve is considering another round of quantitative easing. Finally, Thursday brings the Initial Jobless Claims report. Consensus calls for a reduction of 2000 first time claims to a level of 365,000.

Even with the moderate sell-off over the past couple of weeks, my views about the markets developed through the DWA relative strength analysis are only slightly changed. US stocks remains the strongest asset category followed by Commodities, Bonds, International stocks, and Currencies. US stocks retain a very sizable lead over the other categories. Commodities have shown considerable weakness, and I am not adding to positions and will look to trim if oil and gold prices continue to pull back. Mid-capitalization stocks are favored, growth is favored over value, and equal-weighted indexes are favored over capitalization-weighted ones. On a relative strength basis, DWA puts Consumer Discretionary, Information Technology, and Financials as the three strongest economic sectors. The New York Stock Exchange Bullish Percent (NYSEBP) fell again last week and remains in an eight week negative trend. The current reading of 59.64 is now just over seven points above the 52.96 level at the start of 2012. Markets remain in a weakening trend with uncertainty abroad increasing.


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 financial events and situations.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, including international economic, political and regulatory developments.

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.

TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

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 ®, CRPC ®
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.

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.


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




Tuesday, May 8, 2012


A disappointing employment report moved stock and commodity markets down sharply on Friday resulting in a disappointing week for investors. The sell-off came after the Dow Jones Industrial Average (DJIA) reached a nearly 5-year high on Monday of 13,360. The official April unemployment rate dropped to 8.1% on an anemic monthly non-farm

jobs gain of 115,000 jobs when consensus was calling for an increase of 165,000. More troublesome was the continued drop in the labor force participation rate. The participation rate is the statistic measuring the number of working-age Americans holding jobs. This number fell by 342,000 to a rate of 63.6%. This is the lowest participation rate since December 1981. In an editorial on May 4th, the Wall Street Journal, pointed to a number of factors contributing to this decline including an increasingly older working population, slow job growth making it harder for the unemployed to find their way back into the labor market, and stagnant wage growth which gives less incentive to the unemployed to go out and work. Whatever the reason, the markets reacted negatively to the poor employment news and the dimming prospects for a stronger recovery.

For the week, the DJIA posted a loss of 190 points (-1.44%) and the S&P 500 lost 2.44%, its worst weekly performance in 2012. The Russell 2000 lost 4.07% and the NASDAQ fell 3.68%, each matching the S&P 500 for the worst weekly performances in 2012. For the year, the DJIA is up 6.7%, the S&P 500 has gained 8.9%, the Russell 2000 is positive by 6.9%, and the NASDAQ is up 13.5%.

All of the major economic sectors were negative last week except for Telecom which was unchanged. In addition to Telecom, the best performing sectors were Utilities and Real Estate both of which were down less than 1%. The worst performing sectors were Energy, Materials, and Information Technology each losing around 3.75%. For the year, Consumer Discretionary, Financials, Information Technology, and Real Estate are the best performing sectors with each posting double digit gains. Utilities, Energy, and Telecom are the weakest sectors with Utilities and Energy posting slightly negative returns.

Europe remains a region under duress. Economic growth is flat to negative, unemployment levels exceed 20% in countries like Spain and Greece, and voter discontent is growing. National elections in Greece and France are expected to toss the incumbents and be replaced with more anti-European Central Bank (ECB)/anti-Germany regimes. NOTE: It appears that Socialist Francois Hollande has defeated President Sarkozy 52% to 48%. The Dutch government is getting bounced after undertaking modest austerity measures. Not surprisingly, the European-heavy MSCI EAFE index dropped another 2.5% last week and is now up just over 5% for the year. It is also why using relative strength analysis tools, Europe and most of their countries rank in the bottom third of my international analysis.

With the bad news coming from Europe last week the Euro fell nearly two cents (-1.36%) against the US dollar to close Friday at $1.308. The US Dollar Index gained 1% and is now down just 0.85% for the year. The currency market has been subdued this year and I believe reflects the general uncertainty of investors about the unending actions by central banks around the world.

Commodities were hit hard last week after economic data both here and abroad raised doubts about the overall strength of economic recovery. The Dow Jones UBS Commodity Index constructed with a broad basket of commodities fell 2.7% last week and is now down 2.5% for the year. Oil prices fell especially hard on the unemployment data with WTI oil falling 4% on Friday alone. For the week, WTI oil fell $6.44 (6.14%) to close Friday at $98.49 breaking below the $100 per barrel mark for the first time since February 7th. Gold prices also fell posting a loss of $19.60 per ounce (-1.18%) to close last week at $1645.20.

Bond markets gained for the seventh consecutive week with the Barclays Aggregate Bond Index adding another 0.33%. US Treasury yields fell (prices up) with the 10-year and 30-year rates closing Friday at 1.876% and 3.071% respectively. All the major European yields also fell and the German 10-year Bund is now trading below 1.6%. There is no rational explanation for an investor purchasing US Treasuries at these prices, especially the 10-year Treasury, while the official inflation rate in the US is 2.65%. This means that the real return (actually yield minus rate of inflation) for investors is now a negative 0.8%. Stated another way, investors are willing to lose nearly 1% per year for the safety of owning a 10-year Treasury bond. For the week, extended duration US Treasuries was the best performing bond sector followed by Emerging Market Debt and Municipal bonds. The worst performing sectors were Short Duration US and International bonds and Inflation-protected bonds.

SELL IN MAY AND GO AWAY AND OTHER THOUGHTS

This old market adage has been around for years. It does have historical basis upon which the adage is based, and over the past couple of years, this has been especially visible. According to research conducted by Dorsey Wright & Associates (DWA), during the seasonably weak periods (May 1st to October 31st) the DJIA was up 1.0% in 2010 and down 6.7% in 2011, while during the seasonably strong periods (November 1st to April 30th) for the same years the DJIA was up 15.2% and 13.3% respectively. Looking back over the past 62 years, the average DJIA return during the weak period was -0.17% while the return was 7.10% during the strong period. Most of us do not have a 62-year holding period, but this relationship certainly warrants consideration when making investment decisions.

Bill Gross of PIMCO writes a monthly commentary and I always look forward to reading his current insights. He

usually delivers his message in a clever context and this month was no different. But stripping the cleverness aside, he makes an important point that I believe should be highlighted. As most of you know, the Federal Reserve has engaged in two rounds of formal quantitative easing (QE) and one informal round (Operation Twist). QE is an accommodative monetary policy in which the Fed encourages economic growth by injecting new money into the economy through Treasury bond purchases in the open market. Operation Twist is a slight derivation of QE where the Fed takes maturing short duration notes and bonds and purchases longer (5-30 year) Treasuries. Bill Gross points out that stock markets lost between 10% -- 15% after QE I and QE II lapsed in March 2010 and June 2011. Operation Twist is scheduled to end June 30th precisely one year following the end of QE II. I do not know if the end of Operation Twist will cause markets to decline yet again, however, investors must remain alert.

Finally, I would like to mention the discussions starting to surface regarding the impact of the potentially massive tax increases on January 1, 2013. I have intentionally avoided the topic because we are still several quarters away from this happening and a lot can change between now and then. However, there is a lot of discussion popping up on both sides by observers who see potential market doom or little impact. All pundits have agenda’s and I think this debate clearly reflects that, so I caution you on being sensitive to these biases. However, I do think that there will be some negative impact on the economy as taxes potentially take away more spending power from consumers. This comes as wage growth struggles to keep up with inflation and workers find their take home pay shrinking.

LOOKING AHEAD

The elections in France and Greece will be endlessly analyzed during the coming week and rightfully so. Changes in political leadership and direction within those countries has the potential to send the European Union back to the

drawing board in an effort to sort out their economic mess creating a new round of anxiety for investors. Here in the US investors will become even more focused on any economic reports that speak to the growth of the US economy. Last week’s numbers left investors struggling to find direction as the economy continues to “muddle.”
The coming week has relatively few key economic reports due out. Thursday’s initial jobless claims are expected to remain unchanged (366,000 vs. last week’s 365,000), and the international trade report is expected to show an modest increase in the trade deficit. The Producer Price Index, a measure of change in prices paid by domestic producers of goods and services, is expected to be unchanged on Friday.

The highlight of the week is Fed Chairman Bernanke’s speech Thursday to a conference in Chicago. Investors will be looking for any hint of the Chairman’s commitment to another round of QE upon the completion of Operation Twist and following recent dissapointments in the Gross Domestic Product and employment growth. As investors become more and more nervous about economic growth, any deviation from consensus or changes of view by Mr. Bernanke, I believe has the potential to push the markets as last Friday’s employment report did.

For now, my views about the markets developed through the DWA relative strenght analysis is unchanged. US stocks remains the strongest asset category followed by Commodities, International stocks, Bonds, and Currencies. US stocks retain a very sizable lead over the other categories. International stocks and Bonds have moved into a tie with a slight nod to International stocks. Mid-capitalization stocks are favored, growth is favored over value, and equal-weighted indexes are favored over capitalization-weighted ones. On a relative strength basis, DWA puts Consumer Discretionary, Information Technology, and Financials as the three strongest economic sectors. The New York Stock Exchange Bullish Percent (NYSEBP) fell again last week and remains in a seven week negative trend. The current reading of 64.84 is down from the high of 76.04 reached on February 17th. Even as the DJIA was reaching new heights last Monday, the broader market continues to lose strength.

Sincerely,



Paul L. Merritt, MBA, AIF®, CRPC®
Principal
NTrust Wealth Management

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

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.

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. 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.

TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

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 generally are 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 financial 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.

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 and is a capitalization-weighted index meaning the larger companies have a larger weighting of the index. The S&P 500 Equal Weighted Index is determined by giving each company in the index an equal weighting to each of the 500 companies that comprise 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 Russell 2000 Index Is comprised of the 2000 smallest companies of the Russell 3000 Index, which is comprised of the 3000 biggest companies in the US. The NASDAQ Composite Index (NASDAQ) is an index representing the securities traded on the NASDAQ stock market and is comprised of over 3000 issues. It has a heavy bias towards technology and growth stocks.

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

Wednesday, May 2, 2012


Markets here at home moved up nicely last week on continued good earnings news. Through the end of last week, 300 companies of the S&P 500 have reported earnings and 70% came in ahead of estimates. However, the Department of Commerce's initial estimate of the 1st Quarter Gross Domestic Product (GDP) came in at a disappointing 2.2% declining from last quarter's 3.0% and missing the consensus expectation of 2.5%. A drop in government spending contributed to much of the decline as did a pullback in business investing. Consumer spending was a bright spot, but with incomes advancing slowly, economists are concerned about whether consumers can continue to maintain spending at this pace. Initial jobless claims also came in higher than anticipated at 388,000 and marks the second straight week of growing first time jobless claims. All of this had Fed Chairman Bernanke stating yet again that he would take action (quantitative easing) if the economy slowdown worsened, but he did not think that action would be necessary now.

With just one trading day left in April, the Dow Jones Industrial Average (DJIA) was up 199 points (1.53%) for the week and has managed to move positive for the month (0.12%), and is now up 8.27% for the year. The S&P 500 gained 1.80% for the week and is now up 11.59% for the year. The Russell 2000 added 2.66% for the week and the tech-heavy NASDAQ gained 2.29%. For the year the Russell 2000 is up 11.41% and the NASDAQ is up 17.81%.

All the major economic sectors were positive last week led by Energy, Consumer Discretionary, Real Estate, and Information Technology. Consumer Staples, Health Care, and Materials were the bottom three sectors, but as I said, all posted positive gains for the week.


Europe remains a major concern. Standard & Poor's downgraded Spain's debt two notches raising concern through European markets. Great Britain is in a mild recession and Spain is expected to release their GDP figures showing that country is again in recession. Spain's unemployment has also reached a staggering 24.4%. The French election is just over a week away and the Socialist Francois Hollande is expected to displace current president Nicolas Sarkozy. Mr. Hollande's stated agenda will place a great deal of strain on French and German relations. Not surprisingly, the European-heavy MSCI EAFE index lagged the US markets by gaining just 0.68% for the week. For the month of April this index is down 2.07% and is up a modest 7.70% so far this year.


The Euro was virtually unchanged against the US Dollar adding just 0.30% to close at $1.326. The broader US Dollar Index which measures the US Dollar against a basket of six currencies (mostly European and heavily weighted towards the Euro) fell 0.55% and is down 1.83% for the year. Currencies in general have moved little if at all recently reflecting the great uncertainty about central bank activities. Much like interest rates, currencies today have grown increasingly dependent on the actions of central bankers and less on more traditional economic principals such as trade imbalances.

Gold and WTI oil were up 1.36% and 1.56% respectively last week, and the Dow Jones UBS Commodity Index (a broad basket of commodities) gained 1.98% marking its first gain in six weeks. Gold rallied primarily on the weaker US economic data (raising the probability of additional quantitative easing by the US Federal Reserve), and oil gained on speculation that the global supply of oil would not be artificially impacted by releases of the strategic oil reserve to help hold down prices.

Bond markets continued to move slowly upwards (pushing interest rates down) as economic data remained neutral to weak. I read a number of stories over the weekend of a major migration of investment dollars from the equity markets to the bond markets. This represents fear on the part of most investors, but also provides gains for bonds. The Barclays Aggregate US Bond Index was up for the sixth straight week adding 0.13%. So far in April the Barclays has added 1.09% and 1.42% for the year. The yields on US Treasuries have also fallen for the past six weeks and the 10-year yield stands at 1.931%. German, French, Italian, and even Spanish yields also fell. The German 10-year yield closed Friday at 1.699% and the Spanish 10-year at 5.881%. For the week, international bonds, preferreds, and high yield were the best performing of the bond sectors while the short duration and mortgage-backed bond sectors were the weakest. For the year, preferreds, international inflation, and municipal high yield lead all major bond sectors while extended duration US Treasuries and corporates are the weakest.


THE GROWTH VS. AUSTERITY CONUNDRUM

The European debt crisis has become an ongoing drama unfolding before us in Berlin, Paris, Brussels, Madrid, Athens, and Lisbon. European leaders have managed to stave off the most serious and immediate problems allowing the debate to now focus on how best to improve the economic growth prospects of the EU. The challenge, I believe, is that the patience of most European voters will be insufficient to see through the necessary structural reforms that will fix the real problem-national economies overly dependent on government spending which have been funding an unsustainable lifestyle.


The upcoming French election illustrates this problem. President Sarkozy has worked closely with German Chancellor Merkel to force austerity measures on the most guilty of EU countries like Greece, Spain, Portugal, Ireland, and to a lesser extent--France. The austerity measures, which are really cuts in government spending, have been painful in every country. Private unemployment in Europe has always been poor relative to the United States, and now government unemployment is surging. GDP's of most European countries have fallen and Spain has become the latest victim as Standard & Poor's cut the country's debt rating and has downgrade or placed on negative watch 16 major Spanish banks. Now the French look like they are going to throw restraint aside and elect a president who has called for the highest tax rate to be raised to 75%, a renegotiation of the current, but not ratified, EU treaty, and who wants the European Central Bank (ECB) to begin issuing Euro Bonds which the Germans and ECB strongly oppose. In other words, the French want a return to the good ole days of high government spending. The French also do not like that the prescription being pushed on the EU emanates from Berlin and not Paris. It is hard to undo hundreds of years of contentious relations!

What Mr. Hollande is proposing is to maintain the status quo of heavy government spending to subsidize the nearly 50% of French who work for the government, and apparently the French electorate has warmed to this idea. This will be confirmed next Sunday when the French vote for their president. What is lost in all of the rhetoric of Sarkozy and Hollande is economic reality. Regardless of who is elected, there will be little or no private money coming to France's or Spain's or Greece's government coffers to fund this modern European lifestyle. I believe Hollande understands this, which is why he is calling on the ECB to start up the printing presses and issue Euro bonds. The Germans have no appetite for the Euro bond concept because they will be on the hook for much of the new debt issued by the ECB.

European economies are contracting on the withdrawal of government spending. They have to. The short-term pain is terrible, especially for those most affected. But the lack of structural reform is keeping a lid on growth. Structural reform is another way of saying the Europeans must radically change labor and business laws. Labor laws in Europe are, in many cases, very rigid and uncompromising. Workers cannot be fired, minimum wages are extremely high, weekly work hours constrained well below 40 hours, and vacations are overly generous to name just a few examples. Regulations to start new businesses are excessive and complex designed to prevent new competition to existing companies. The Germans recognized that these issues were holding back their economy a decade ago and voluntarily implemented many pro-growth structural changes that has made Germany the economic powerhouse it has become. Now it is time for the rest of Europe to step forward and do the same. Unfortunately, if the French elections are to be any indication, it looks like the Europeans are opting to delay the inevitable.

LOOKING AHEAD


The French presidential vote is May 6th and I believe the Socialist, Francois Hollande, will be elected. I also believe that this may lead to another round of instability in Europe. I say "may" because the financial markets could step in and derail much of Mr. Hollande's desired reforms before they can be undertaken. This mess is one of the principal reasons why the International asset category remains fourth of the five I follow on a relative strength basis, and why I have been recommending very limited exposure to this asset category.

The announcement of the 1st Quarter GDP numbers disappointed and indicates the the US economy is slowing. Investors will be watching the economic reports this week for confirmation of this slowing. Personal Income and Outlays will be released on Monday morning, the ISM Manufacturing Index on Tuesday, the regular Initial Jobless Claims on Thursday, and the all important April Employment Situation on Friday morning. Consensus calls for personal income to rise slightly, manufacturing to contract very modestly, initial jobless claims to fall by 10,000 but still remain at


a high 378,000 level, and for non-farm payroll jobs to grow from last month's growth of 120,000 to 165,000. The unemployment rate is also expected to remain at 8.2%. Surprises either way can possibly impact the stock markets. Otherwise, I believe we will continue to muddle along.

For now, my views about the markets developed through the Dorsey Wright & Associates (DWA) relative strength analysis is unchanged. US stocks remains the strongest asset category followed by Commodities, Bonds, International stocks, and Currencies. US stocks retain a very sizable lead over the other categories with the others clustered closely together. Mid-capitalization stocks are favored, growth is favored over value, and equal-weighted indexes are favored over capitalization-weighted ones. On a relative strength basis, DWA puts Consumer Discretionary, Information Technology, and Financials as the three strongest economic sectors. The New York Stock Exchange Bullish Percent (NYSEBP) fell again last week and remains in a six week negative trend. The current reading of 66.09 is down from the high of 76.04 reached on February 17th.

I fundamentally believe that US equity markets today are the strongest place to be invested in for those who own stocks. I am cautious, however, because the NYSEBP has started to contract and this has been reflected in a sluggish stock market in April. If the DJIA closes below 13,212 on Monday it will be the first negative month for the DJIA since October 2011. Even if the DJIA manages to close above 13,212 it is unlikely to be a stellar month. Markets never travel in one direction for long and this may just be a pause, but diligence is called for.


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 financial events and situations.

Investments in commodities may have greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, including international economic, political and regulatory developments.

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.

TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation. Increase in real interest rates can cause the price of inflation-protected debt securities to decrease. Interest payments on inflation-protected debt securities can be unpredictable.

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

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

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

Sincerely,






Paul Merritt, MBA, AIF ®, CRPC ®
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.

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