US markets were all down modestly this past week while the US dollar and commodities rebounded. International markets were generally down with minor strength in some of the emerging markets.

For the week, the Dow Jones Industrial Average (DJIA) lost 84 points (-0.66%) to close at 12,512 and the S&P 500 lost 4 points (-0.34%) to close at 1334. Hewlett-Packard (HPQ) had a particularly bad week (-11.0%) followed by aluminum giant Alcoa (AA) which lost 4.9%. Smaller and middle capitalization stocks did not provide any relief with the Russell 2000 losing 0.79%. For the year the DJIA is now up 8.07%, the S&P 500 is up 6.01% and the Russell 2000 is up 5.79%.

The Energy sector rebounded last week to lead the 11 broad US economic sectors that I follow. Consumer Staples was the next best performer followed by Utilities, Real Estate and Telecom. Each of these sectors posted positive gains for the week. Information Technology, Consumer Discretionary, and Industrials were the bottom three and each lagged the DJIA. Apparel retailers were especially hard hit last week after Gap (GPS) announced that they were cutting full-year profits by 25% reflecting higher costs to manufacture clothing.

International markets posted a third week of losses this past week with the MSCI (EAFE) World Index dropping another 0.90%. This broad international index is now down 5.28% for May compared to a month-to-date loss of 2.22% for the S&P 500. For the year, the MSCI (EAFE) is up 2.67%. Emerging markets posted a slight gain of about 0.32% last week. Growing concerns about the Greek debt crisis is casting a wide shadow over most of Europe as fears mount that Greece will require some type of debt modification or restructuring as the private sector has signaled that it will not buy new debt without extreme returns. Spain is also getting negative assessments by bond investors going into Sunday's local elections. It is expected that the ruling Socialist Party will be drubbed making room for a center right party. National elections are scheduled for March of 2012 but it is unknown if the Spaniards' discontent for the status quo will carry over to the national socialist party. One of the issues concerning bond investors follows the discovery after another recent local election that local officials had hidden the true extent of debt. Since most of the debt is localized in Spain, this will be an important factor in the coming weeks and months.

The Euro was essentially flat against the US dollar gaining just one-half of one cent to close the week at $1.4116. Investors have been leaving the Euro and purchasing gold and US Treasuries as a defensive move in the face of the ongoing European debt concerns.

Gold was back in the news last week with a gain of $15.30 (1.02%) to close the week at $1508.90. As already noted, worries in Greece and the Euro Zone have prompted investors to seek the safety of gold. Silver continued to fall losing just over 0.5% for the week. Oil was unchanged holding at just under $100 per barrel. A broad basket of commodities showed solid gains last week adding about 1.6% from the previous week's valuation. Strength was found in agricultural commodities and base metals (i.e. lead and copper).

The Barclays Aggregate Bond Index posted its sixth straight week of increases gaining 0.23% for the week. This broad-based US bond index is now up 2.73% for the year. The US 10-year Treasury yield fell slightly from 3.172% to 3.146% last week on European worries and news following the release of the last Federal Reserve meeting minutes indicating that the Fed is likely to take a long time (2 years or more) to reign in its accommodative monetary. Treasury Inflation Protection Notes (TIPs) were hardest hit losing about 0.25% as investors expressed their belief that inflation would be relatively tame for the foreseeable future. Long-duration bonds again rallied on the low-interest rate outlook and worries over European bonds.

WHAT I AM SEEING BY WATCHING

The Hall of Fame New York Yankee catcher, Yogi Berra, is renowned for his ability to state the obvious with great insight. One of my favorite quotes of Yogi's is, "You can observe a lot by watching." Recently the technical indicators that I follow have been telling me that stock markets are starting to weaken, bonds are gaining strength, and that stocks are reasonably valued.

You may think that I am stating the obvious, because since the beginning of May, markets have managed to lose a couple of percentage points. True, but more importantly, I am seeing my primary risk indicator, the New York Stock Exchange Bullish Percent (NYSEBP) give its first "sell signal" since last May. US stocks are still favored, so I am not selling wholesale, but I do believe it is prudent to consider raising cash allocations within portfolios in reaction to this elevated risk level.

My bond indicator has been rallying lately and showing strength. There is still a way to go before bonds give a "buy" signal, but a floor has been found and demand is back in control.

When I say stocks are reasonably valued, I am looking at the past 10-week moving average of either a stock or an index and evaluating its current position within this band. Across the board, stocks have moved back down from an over-bought status to a more neutral position within its respective band.

So I am seeing a market that looks much like it feels but where risk levels are rising. Investors are reacting to the uncertainties found here and abroad, and until some of these uncertainties have been clarified, expect more of the same.

LOOKING AHEAD

The recent movement in the markets has not been enough to change my overall recommendations. Small and mid capitalization stocks remained favored over large cap stocks, growth is favored over value stocks, and US stocks are favored over international. It has been very difficult to find leadership among international markets. Countries ebb and flow in terms of performance and no one country or region has been dominate over the past several months. I focus closely on the technical scores of each international investment and am retaining those that are strong, and selling the weakest. If you have any questions about the scores of your investments, please give me a call.

Commodities remain a favored asset category and have generally strengthened in the last week or two, however, keep in mind that this is a particularly volatile asset category.

I have made no changes to my sector recommendations. I favor Health Care, Energy, and Industrials along with Real Estate and Consumer Discretionary. Financials stand out as the one sector to avoid and trails the health care sector return by over 15% so far in 2011.

Bonds have stabilized and are providing acceptable returns. TIPs have shown weakness recently due to the Fed's recent comments and weakening economic data. International bonds and corporate bonds are doing well as are high yield and preferreds.

The official kick-off to summer is this coming weekend with the arrival of the Memorial Day Holiday. I will not be publishing an Update next week. As we all enjoy our extra day or two off from work, I hope that you will take a moment to remember those who have given their lives in defense of our great nation.

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

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

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

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

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

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

Sincerely,

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

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

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

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

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

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