US and global equity markets pulled back this past week as investors digested the effects of QEII, the mid-term elections, the G-20 Summit in Seoul, worries of renewed debt problems in the Euro Zone, and a flash of inflation from China.

For the week, the Dow Jones Industrial Average (DJIA) lost 251 points (-2.20%) ending the week at 11,192.58. The S&P 500 lost 57 points (-2.17%) to close Friday at 1199.21. For the year the DJIA is up 7.3% and the S&P 500 is up 7.5%.

Energy, Consumer Staples, and Consumer Discretionary were the best performing broad sectors last week while Real Estate, Health Care, and Industrials brought up the rear. Year-to-date among the top three broad economic sectors Consumer Discretionary replaced Real Estate as the top performing sector while Real Estate fell to number two and Industrials remained at number three. Health Care, Utilities and Financials remain at the bottom.

The MSCI (EAFE) World Index fell in concert with the US markets losing 2.4% on negative news regarding debt concerns in Ireland and inflation worries in China. Emerging markets fell sharply last week with India, Australia, Brazil and Turkey leading the drop. Japan, Peru, and Chile were the best performers. For the year the MSCI (World) Index is up 3.2%. As 2010 begins to wind down, the top performing countries that I follow have been Thailand, Peru, and Indonesia while Ireland, Spain, and Italy have been the weakest. The bottom three countries should come as no surprise given the underlying fears of a national debt implosion in the Euro Zone.

The Euro fell last week to $1.3692 from the previous week’s close of $1.4032. The Euro has been rising for some time against the US dollar as the Federal Reserve has directly or indirectly maintained a weak dollar policy via bond purchases in the open market. However, this policy was not enough to keep Euro investors from buying US dollars as Ireland’s current financial problem is seen as reaching a critical stage. The European Union (EU) and the International Monetary Fund (IMF) have created a very sizeable reserve for Ireland to draw on if needed; but so far, the Irish have been adamant about not taking the funds to maintain their sovereignty (there are lots of strings attached to any bailout). This story will have important ramifications in the days and weeks ahead.

Oil prices fell $4.85 per barrel closing at $82.00 for a weekly loss of 5.58%. Gold also fell shedding $25.70 per ounce (-1.84%) to close at $1369.40. Commodities were hit especially hard the end of the week as China announced that inflation in that country had reached 4.4%. Investors expect that the Chinese will adopt policies to slow economic growth impacting negatively on the overall demand of natural resources imported by the Chinese. A rising US dollar will also negatively affect commodity prices.

US treasury yields have risen to two month highs as bond owners have been selling bonds following the Fed’s announcement that the Fed would purchase up to $600 billion in bonds. At the very least it appears that profit taking is behind the selloff. The 10-year rate closed Friday at 2.7889% up from 2.5412%. This 9.75% increase in yield is the largest single week move so far in 2010. I believe it is too early to tell if this is little more than profit taking or a shift by investors away from longer-term bonds on fears of impending inflation.

G-20 SUMMIT MEETING IN SEOUL MEETS WITH LITTLE SUCCESS

The purpose of the G-20 is to have the world’s largest economies meet and coordinate global financial policy. When the G-20 met in early 2009 during the midst of the credit crisis, the countries agreed that massive monetary and fiscal stimulus was needed to keep the world from sinking into a depression. All 20 countries acted accordingly and the crisis was blunted. This past week, with the crisis subdued, countries were more focused on their individual interests and the United States stood alone calling for continued massive stimulus to spur economic growth.

Leading up to this meeting, it was evident by the mounting global criticism of Secretary Geithner’s call to curb trade imbalances between exporters and importers that the US position would not prevail in Seoul—and it did not. The Wall Street Journal opined this past weekend that they could never remember an international meeting where a US President and Treasury Secretary had been so thoroughly rebuffed. The problem is quite simple, the rest of the world sees the US as being hypocritical as the President endorses the Fed’s easing policies (QEII) which puts downward pressure on the US dollar at the same time the US is criticizing China on their own currency manipulation. Export growth by the US would come at the expense of other exporting countries and those countries (Germany, China, and Brazil to name a few) are not willing to cut their exports on behalf of the US. Without dominant US leadership, the meeting resulted in little meaningful accomplishment.

THE EUROPEAN DEBT CRISIS AND CHINESE INFLATION

I have already touched on the debt crisis growing in Ireland. The issue centers around growing doubt that the Irish can meet their bond obligations and their commitment to austerity measures. But this is only part of the story. The real fear is that if Ireland falls, then Portugal falls, and then Spain, and so on. Sooner or later there will not be enough Euros to bailout every country. The European leadership understands this, so they are aggressively dealing with the concerns. The question remains—will the EU be successful.

The Chinese announced inflation jumped to 4.4% over the same period a year ago. Investors fear that the Chinese government will act quickly to try to curb economic activity by raising interest rates, cash reserve requirements by banks, or both. These concerns spilled out over most of Asia as many countries had very poor market performance at the end of the week. Commodity prices fell sharply on fears that the Chinese will curb imports of many raw materials. As I write this Update (Saturday night), there has been no announcement by the Chinese government of any policy moves. There may be some further action by the Chinese government in the coming weeks, but the market’s reaction may prove to be based upon speculation and profit taking.

Looking Ahead

At the core of all the economic news this past week, as it has been in other weeks, is the story of an extremely week US economic recovery. Unemployment is 9.6%, GDP growth is around 2%, and the potential for political gridlock in Congress diminishes hopes of any certain turnaround. Inflation looms in the back of everyone’s minds as the Federal Reserve continues printing money at historic rates. My vote right now is for the President and Congress to work together to get this country back to work.

The 2+% drop in markets in the US and abroad may just be profit taking. It may be a pause after the market surge in September and October. One week of activity is not a trend and must simply be watched closely. The New York Stock Exchange Bullish Percent (NYSEBP) actually rose slightly to close at 75.58 for the week. Any level over 70 signals an increase in risk, not imminent market direction. Positions should be entered cautiously here.

US and International stocks are favored. Commodities, hit hard last week, remain strong. Bonds appear to be under a little bit of pressure going into next week. The longer maturities are coming under the most pressure while the municipal bond market has been quietly selling off over the past 30 days or so. The take away here is that security and bond selection is critical. Buy the strongest technical stocks and bonds, and pay attention to them. I believe bonds are a solid holding for many at this time, but I am cautious about new investment in bonds with maturities greater than 10 years. I am focusing on short to intermediate-term bonds. Don’t forget about Treasury Inflation Protection notes (TIPS for short) if inflation begins to emerge.

Small and mid-capitalization stocks continue to be favored over large caps. Equal-weighted indexes (which will include more mid cap stocks) remain favored over capitalization-weighted indexes. Emerging markets remain favored over developed.

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.

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2,5,10, and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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

US equity markets reached their highest levels in two years following an announcement by the Federal Reserve that it will purchase up to $600 billion in long-term US treasuries through the end of June 2011 in an effort to jump start the economy and inflation causing a surge in commodity prices. Additionally, mid-term elections promise to slow down the high-tax, big government agenda pursued by the last congress; and a higher than expected private sector jobs report buoyed investors.

For the week, the Dow Jones Industrial Average (DJIA) gained 326 points (+2.93%)closing the week at 11,444.08. The S&P 500 added 43 points (+3.60%) to close Friday at 1225.85. For the year the DJIA is now up 9.7% and the S&P 500 is up 9.9% and are levels not seen since September 2008.

Financials, Energy, and Real Estate were the best performing broad sectors last week while Health Care, Consumer Staples, and Utilities brought up the rear. Year-to-date the top three broad economic sectors continue to be Real Estate, Consumer Discretionary, and Industrials while Health Care, Utilities, and Energy have lagged. The strength of the financial sector can be attributed to reports that the Fed may allow healthy banks to resume paying dividends.

The MSCI (EAFE) World Index kept pace with US markets gaining 3.41% for the week. Emerging markets outpaced developed markets as investors continue to take on more risk and as the US dollar continues to weaken. For the year the MSCI (World) is firmly positive up 5.7%. For the week, the top performing markets that I follow were Hong Kong, China, and Australia while Spain, Italy, and Ireland were the weakest. For the year, Thailand, Peru, and Turkey have been the best performers while Spain, Italy, and Ireland have been the worst. The weak European countries cannot shake concerns about their ongoing debt problems.

The Euro continued to gain against the US dollar as the Fed signaled that it would hold interest rates down by purchasing long-term US treasuries. For the week, the Euro closed at $1.4032. The general weakening of the US dollar is having significant ramifications on commodity markets.

Oil prices jumped $5.42 per barrel closing at $86.85 for a weekly gain of 6.66%. Gold closed at $1397.70 gaining 2.96% for the week. The commodity story is not a uniform one. Sugar, cotton, and corn are all subject to the variances of supply and demand as weather patterns influence production and supply; while gold and other precious metals certainly reflect general uncertainty about the US dollar. Oil is certainly influenced by the value of the dollar, but also reflects supply figures and overall expectations of global growth.

With all the news from the Fed about its bond purchase program, US treasuries have remained relatively stable with the 10-year rate closing Friday at 2.5412%. This is only slightly below its close two weeks ago at 2.5624%. I think it is safe to say that the markets had already priced the Fed's announcement into yields.

RAMIFICATIONS OF THE FED'S ANNOUNCEMENT TO BUY BONDS

I have pointed out in previous Weekly Updates that the Fed's program to buy bonds (also known as QE2 for Quantitative Easing Round 2) would boost all asset classes. Stocks because many of the dollars printed by the Fed will find their way into the stock market, bonds because interest rates will be held down, and commodities would gain because of a weak dollar. This has happened and while many investors are certainly happy to see markets and valuations rise, concerns about the direction of US monetary policy is being voiced by leaders from Europe, China, and other parts of Asia. In general, foreign leaders are worried about how the weakening US dollar will negatively impact their exports abroad and create asset bubbles in their own economies. I have also commented about fears of currency wars erupting between countries and there continue to be signs of this possibility. Secretary Geithner is traveling abroad in advance of the next G20 meeting November 11-12 in Seoul and is finding pushback from preliminary meetings with finance officials. Domestically, concerns about the Fed's ability to stoke the economy without losing control of inflation remain as well.

MID-TERM ELECTIONS AND OTHER NEWS

The generational gains by Republicans in the House of Representatives and among state legislatures around the country signals change is coming. I will leave the broad ramifications of what form this change will take to the many, many pundits who comment on such things. What I will say is that there will certainly be a degree of gridlock in Congress and expect the next two years to be a lead up to the 2012 presidential campaign. What I believe we all want is for our government to focus on a healthy business climate and job creation. While the jobs report on Friday indicated an increase of 151,000 private sector jobs created in October, this pace of job creation is very anemic and will not make a dent on overall employment. An unemployment rate stuck at 9.6% will not contribute to the long-term economic recovery of the US. My hope is that Congress and the President will get serious about focusing on government policies that encourage growth, not inhibit it.

Looking Ahead

There was an incredible amount of news that impacted the markets last week. Most of it positive and the markets have reflected that by reaching two year highs.

The New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 75.07 and is well above the overbought line of 70. What I find interesting is that while the markets have reached two year highs, the NYSEBP is below the most recent high of 82.39 on September 17, 2009. This indicates that fewer stocks are participating in the market's gains and indicates a "divergence" from previous market highs.Remember, this statistic does not say that a correction is certain in the near-term, but it does indicate that the chances of a pull back have increased.

US and International stocks are favored. Commodities are very strong. Bonds are simply treading water (not a bad thing), and currencies are very uncertain at this point.

Small and mid-capitalization stocks continue to be favored over large caps. Equal-weighted indexes (which will include more mid cap stocks) remain favored over capitalization-weighted indexes. Emerging markets remain favored over developed markets and this relationship has strengthened recently.

The Dow Jones Corporate Bond Index and the Barclays Aggregate Bond Index both gained last week, albeit slightly. I believe bonds are a solid holding at this time, but I am cautious about new investment in bonds with maturities greater than 10 years. I am focusing on short to intermediate-term bonds. As cash sloshes around the world, emerging market bonds are becoming attractive.

Risk levels remain elevated. This does not mean that a correction is imminent, but adding positions should be done so incrementally and any pullback would be considered a buying opportunity.

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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

Attention shifted abroad last week as the US and other countries of the G20 met in South Korea to discuss the global economy and attempt to head off potential currency wars. The US dollar reversed 6 weeks of losses against the Euro and other major currencies, and US corporations continue to report good earnings as markets ended the week with modest gains.

For the week, the Dow Jones Industrial Average (DJIA) gained 70 points (+0.63%) remaining firmly above 11,000 closing the week at 11,132.56. The S&P 500 added 7 points (+0.59%) to close Friday at 1183.08. For the year the DJIA is now up 6.8% and the S&P 500 is up 6.1%.

Real Estate, Financials, and Industrials were the best performing broad sectors last week while Materials, Energy, and Utilities brought up the rear. Year-to-date the top three broad economic sectors continue to be Real Estate, Consumer Discretionary, and Industrials while Financials, Health Care, and Utilities have lagged.

The MSCI (EAFE) World Index posted its first losing week in nine falling 0.46%. A strengthening US dollar and international economic policy debates weighed on this broad international index. For the year the MSCI (EAFE) World index is up 2.72%. For the week, the top performing countries that I follow were Mexico, Italy, and Germany while Brazil, Peru, and Poland were the weakest. For the year, Thailand, Indonesia, and Turkey have been the best performers while Italy, France, and Spain have been the worst.

As noted, the Euro snapped its six week winning streak against the US dollar closing at $1.3933 compared to last week's close of $1.3977. A variety of factors contributed to this drop including policy discussions by the G20, rioting in France and ongoing strikes there, and the announcement by British Prime Minister Cameron that he was proposing deep, across the board budget cuts to get the UK federal budget balanced by 2015.

Gold pulled back $44.30 (-3.2%) an ounce closing at $1327.70. The same factors bearing on currencies are primarily responsible for this pull back. Oil gained $0.75 to close at $82.00 per barrel. Analysts attribute the continuing strike in France and a possible late season storm in the Gulf of Mexico as reasons for the slight increase in prices. France will tap strategic reserves of refined products to meet demand as France oil giant Total SA announced that striking workers was forcing closure of five refineries in the country.

US treasuries rebounded modestly as the yield on the 10-year note fell to 2.5624% from the previous Friday's close of 2.567%. The volatile long end of the bond market (10+ years in maturity) gained the most while international bonds of all types were the weakest performers. Bond investors will be watching the next Federal Reserve meeting closely on November 2nd - 3rd where it is expected Chairman Bernanke will announce the initial size of the Fed's bond purchase program (QE2). While Chairman Bernanke has said recently that he supports further quantitative easing, the size and scope of the purchases have been called into question by remarks of several regional Fed directors.

CHINA RAISES INTEREST RATES

China's announcement Tuesday that they were raising interest rates by 0.25% sent global markets tumbling. This move by the Chinese to curb potential domestic inflation worries investors that growth in China will slow thereby hurting all markets. The US dollar rallied on the news and most metal commodities fell. This announcement was significant because China does not raise rates often, and is likely to help strengthen the Yuan as investors are attracted to the higher yields. It also will factor in the negotiations between members of the G20who most believe the Chinese improperly hold their exchange rate down to benefit Chinese exporters. While this may signal a willingness of the Chinese government to become more engaged in the international community's concerns, it is most likely a very self-serving decision (but aren't all such decisions) by China to deal with internal inflation.

WHAT IS GOING ON IN SOUTH KOREA?

I have commented recently on the growing concern that some countries (the US is #1 on the list) are devaluing their currencies to boost the competitiveness of exports abroad. The fear is that more and more countries will attempt to do the same to protect their exporters. Currency wars inevitably hurt global markets and consumers. In an effort to reduce tensions, Treasury Secretary Geithner proposed an indirect way of dealing with currencies by trying to target a broader metric, current account balances. I am not going to go into detail at this point about what current accounts are or the pros and cons of this approach, but it does address the currency problem between the US and China in a less confrontational manner. The effectiveness of this approach remains uncertain as a number of exporting nations, including Germany and Japan, have made it clear they do not support this approach.

Looking Ahead

There are a lot of economic issues swirling around us today. The strength of the US and global economies, the potential for currency wars, the uncertainty surrounding what actions the Fed will take with QE2 and the effectiveness of those actions, and the US mid-term elections to name a few. Whew, that is quite a list.

With this uncertainty as our foundation, what I do know is that the New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 70.64 up slightly from last week. A reading above 70 indicates that the markets have become "overbought." While this statistic does not say that a correction is certain in the near-term, it does indicate that the chances of a pull back have increased.

International and US equities are preferred among the five major asset classes I follow. Commodities are third, bonds fourth, and currencies last.

All major international indexes are all positive right now with demand clearly in control.

The Dow Jones Corporate Bond Index and the Barclays Aggregate Bond Index both gained last week, albeit slightly. I believe bonds are a solid holding at this time, but I am cautious about new investment in bonds with maturities greater than 10 years. I am focusing on short to intermediate-term bonds.

Small and mid capitalization stocks remain favored over large cap, and equal-weighted indexes favored over capitalization-weighted indexes. Emerging markets remain favored on a relative strength basis, but developed markets have come back strongly in the past two months and are nearing parity.

Risk levels are elevated to a point not seen since early May and I therefore remain guarded in terms of taking new equity positions. By guarded I mean taking new positions incrementally and being very focused on buying only the strongest technically rated investments.

I will not be publishing an Update next week because of upcoming business travel. I will be attending a conference with my broker dealer, Commonwealth Financial Network®, in Phoenix most of the week. I will remain available should you need to speak with me. Please contact me directly on my cell phone or call my assistant, Lisa Berger, if you need any assistance.

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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

Ben Bernanke and the Federal Reserve remained the focus of economic news this past week while interest rates on US treasuries moved up sharply. Concerns over the mortgage foreclosure process pushed banking stocks down sharply.

For the week, the Dow Jones Industrial Average (DJIA) gained 56 points (+0.51%) and the S&P 500 added 11 points (+0.95%) continuing recent gains. For the year the DJIA is now up 6.09% and the S&P 500 is up 5.48%.

Information Technology, Consumer Staples, and Energy were the best performing broad sectors last week while Financials, Health Care, and Utilities brought up the rear. For the year, Real Estate, Consumer Discretionary, and Industrials have been the three best sectors while Financials, Health Care, and Utilities have lagged.

The MSCI (EAFE) World Index posted a gain of 1.28% marking it highest weekly close in 2010 and outpacing US indexes yet again. For the year the MSCI (EAFE) is now up 3.19%. Israel, China, and Peru were the strongest countries I follow while India, Japan, and Taiwan lagged. On a broader basis, developed markets again led the way with China continuing to show strength. For the year, Thailand, Peru, and Indonesia have been the best performing countries while Spain, Italy, and France have been the worst.

The Euro continued to gain against the US dollar last week closing at $1.3977 up from the previous Friday's close of $1.3929. However, the momentum of the gains against the dollar slowed even in the face of Fed Chairman Bernanke's speech on Friday where he essentially reaffirmed a policy that will continue to weaken the US dollar albeit a little more slowly than the markets had been anticipating.

Gold continued its historic run gaining another $26.30 an ounce closing at $1372.00. As I have stated recently, these prices reflect the continuing uncertainty about the strength of paper currencies (read inflation) and an underlying lack of confidence in the global economy. Oil closed down $1.41 at $81.25 last week but still above that important $80 per barrel level. Supplies remain high, but the strike in France continues to negatively impact European refining output. There are now 62 crude-laden ships waiting for the port strike in Fos-Lavera to end so they can discharge their cargo.

US treasuries fell broadly as concerns entered into the market that the Fed's Quantitative Easing (QE) has already been priced into the market and that the ongoing easy money policies represented by QE will lead to inflation in the future. The 10-year yield closed at 2.567% up from 2.392% the previous Friday. Just as the previous week's interest rate move down was the largest one week move this year, this week's interest rate gain was a close second in terms of the size of the move. I said last week that the large drop spoke volumes about investors' expectations; this week's near reversal of that move speaks loudly about how uncertain investors have become. Corporate bonds were also hit with most bonds losing a small percentage of their values. Greatest losses among all bonds were found among the longer-term bonds which are more interest rate sensitive than intermediate or short-term bonds.

IT'S THE FED OVER AND OVER AND OVER AGAIN

The dominating economic story for the third week in a row is the Federal Reserve and its focus on stimulating the US economy by increasing the money supply through the purchase of securities through the Fed's Open Market Committee. My previous two Weekly Updates have addressed this subject in detail. This week's news was mostly focused on Fed Chairman Ben Bernanke's speech Friday morning in Boston where he made several key points:

Inflation is too low. He stated that he thought the appropriate core inflation rate should be 2%.

Unemployment is too high and needs to come down.

The Fed will take further steps to stimulate the economy such as holding short-term rates down and adding liquidity to the economy-more quantitative easing.

The equity markets may be hoping for a huge injection of new cash into the economy, but Bernanke did not give this indication. He also expressed concern over the lack of historical empirical evidence regarding the effectiveness of the non-traditional central bank tools he is employing. The bond markets appear to be rethinking the threats of inflation (if the Fed does less QE it could translate into higher rates), and the commodity markets are driven by a weaker dollar and economic fears.

WHAT ELSE IS GOING ON?

The foreclosure mess has hurt the banks and has cast uncertainty about the ability of the housing market to recover sooner rather than later. The issue revolves around technical processing procedures and not about mortgage holders who are current on their loans being forced from their homes. Home foreclosures in September reached a record 102,134. Additionally, foreclosure filings rose three percent to 347,420. This number represents one out of every 371 households in America. The rate of foreclosures should drop as moratoriums take hold. The net result will be slowing down foreclosures for now and extending the mess that the US housing market has become. Banking giants Bank of America and Wells Fargo each lost 9% of their stock value and Citigroup lost nearly 6% last week.

Initial jobless claims gained 13,000 to 462,000. The lack of job creation continues to be a serious issue.

Consumer sentiment as measured by the Thomson Reuters/University of Michigan index of consumer sentiment fell in October to 67.9. This follows a drop in September as well. The historical average of this index when the economy is in a recession is 74.1and 90.4 in expansions. The economy may be expanding, but not at a rate that is making the consumer feel particularly good.

There was good news last week in the form of retail sales which rose 0.6% in September across most retail sectors. Only clothing and department store sales dropped. Because the consumer remains such a significant part of the economy, this was a very good report.

Looking Ahead

I have said many times that I am not a prognosticator. I do not have the ability to predict what financial markets will do, nor can anyone else for that matter. However, I can look at the technical indicators and get a sense of where we are and what that means to you.

The New York Stock Exchange Bullish Percent (NYSEBP) closed Friday at 69.87 and has been improving week after week. A reading of 70 indicates that the markets have become "overbought." While this statistic does not say that a correction is certain in the near-term, it does indicate that the chances of a pull back have increased. The NYSEBP peaked on April 26th at 80.69 and fell back to 37.6 by June 8th. What this tells me is that there is more risk in the market, not less; and new equity positions should be carefully considered before entering.

All major international indexes are all positive right now with demand clearly in control.

The Dow Jones Corporate Bond Index has pulled back slightly but remains positive while the Barclays Aggregate Bond Index, with its heavy weighting in US treasuries, has turned negative. I am not suggesting reducing current bond holdings, but I am watching this trend closely.

The Dorsey Wright & Associates Dynamic Asset Level Indicators have International and US Equities favored. Commodities recent positive move has pushed Bonds to fourth and Currencies remain last. Small and mid capitalization stocks are favored over large cap, and equal-weighted indexes favored over capitalization-weighted indexes. Emerging markets remain favored on a relative strength basis, but developed markets have come back strongly in the past two months.

The markets have the feeling that they may be reaching an inflection point. The technical indicators that I follow are signaling higher risk levels. If or when they turn is unclear; however, positions must be watched closely. Earnings season will begin in earnest this week and investors will be listening closely to corporate earnings and, more importantly, corporate outlooks as the overall economy continues to be very sluggish. The mid-term elections are just a few weeks away and investors may begin to anticipate a more business-friendly Congress emerging.

If you have any questions about the overall relative strength of your portfolio and would like my analysis, please do not hesitate to give me a call.

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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

A poor jobs report on Friday increased expectations of Federal Reserve intervention spurring a rise in commodity prices as the US dollar continued to weaken. The Dow Jones Industrial Average (DJIA) closed above 11,000 for the first time since the end of April.

For the week, the DJIA gained 177 points (+1.63%) and the S&P 500 added 19 points (+1.65%) to extend recent gains. For the year the DJIA is now up 5.55% and the S&P 500 is up 4.49%.

Materials, Industrials and Energy were the best performing broad sectors last week while Telecom, Utilities, and Health Care brought up the rear. For the year, Real Estate, Consumer Discretionary, and Industrials have been the three best sectors while Health Care, Information Technology, and Energy have lagged.

The MSCI (EAFE) World Index posted a weekly gain of 2.73% outpacing US indexes and is now down just 0.82% for the year. Turkey, Peru, and Spain were the strongest countries I follow while Chile, Thailand, and Indonesia took a breather and lagged. On a broader basis, Developed Markets led the way with China and Japan showing renewed strength. Ireland made headlines towards the end of the week when Fitch Ratings and Moody's Investors Service both downgraded the country's sovereign debt one notch, but Ireland's markets shrugged off the news and were up along with most European countries for the week.

The Euro's surge against the US dollar continued last week closing at $1.3929 up from the previous Friday's close of $1.3790. This move brings the Euro to levels not seen since late January. The dollar is falling against most other currencies as well and this trend is generally responsible for the recent increases of commodity prices.

Gold gained another $33.30 an ounce closing at $1345.50. These record high prices have launched debates about whether gold is now at "bubble" levels or supported by market fundamentals. Likewise, oil also climbed and remains above the $80 level closing at $82.66 up $1.08 from its October 1st close. Oil pulled back slightly Friday on news of an extended port workers strike in France cutting off most crude delivers in that region. The expectation is that record high seasonal inventories in refined products will draw down as a result.

US treasuries rallied again after the jobs report with the 10-year yield closing at 2.392% well below last week's close of 2.625%. This was the largest weekly move on a percentage basis in 2010 and speaks volumes about investors' expectations.

RAMIFICATIONS OF HIGH US UNEMPLOYMENT

Friday's jobs report sent the bond market surging with expectations that the Fed is likely to renew Quantitative Easing (QE) in November. I have addressed QE in recent Weekly Updates, but I believe the importance of this topic warrants another review. QE is implemented by the Federal Reserve purchasing securities (i.e. US Treasuries) on the open market for the purpose of injecting liquidity (cash) into the economy. This new cash (the Fed prints the dollars they use for QE) flows into the economy and is eventually expected to result in positive outcomes such as renewed lending by banks and strong economic activity. Cash is the gasoline that runs the economic engine and QE is an octane boost.

The impact of this new wave (or anticipated wave) of QE generated cash into the economy ripples throughout the US and global economies resulting in:

Falling interest rates: we saw on Friday the 10-year US Treasury yields fall dramatically simply in anticipation. The 2-and 5-year yields are at record lows.

Falling US dollar: Global investors seek higher interest rates elsewhere so US dollars are sold to buy the currencies of the other countries that investors are buying bonds in.

Increasing US exports: or so the theory goes. As the US dollar weakens, US goods become cheaper abroad giving American products a price advantage. This increases economic activity here in the US.

Increasing likelihood of "currency wars:" Other countries wishing to protect their own markets and manufacturers may also attempt to push the value of their currencies down. Japan, Brazil and South Korea have all taken measures recently to do just this.

Increasing commodity prices: the vast majority of commodity contracts around the world are priced in dollars. Foreign commodity buyers must exchange their currencies for US dollars effectively lowering the cost to those buyers. Americans in turn see higher commodity prices as lower prices abroad spur greater demand.

Raises expectations of future inflation.

Excess US dollars can find their way into equity markets causing stock prices to rise.

If this sounds like the world is getting extremely interdependent, it is. Countries all act in their self-interest and when things get out of balance as may be happening; this can put significant pressure on all economies.

Treasury Secretary Timothy Geitner spoke on Saturday (October 9th) to an International Monetary Fund (IMF) gathering of world economic leaders arguing that some currencies are significantly undervaluedtranslate this to mean, "China, you need to let the Yuan appreciate to make US goods in China cheaper." The Chinese have historically resisted calls of action by the United States, and this time is no different. Also, because the Chinese peg their currency to the US dollar, their goods remain competitively priced all over the globe. Expect a lot of discussion ahead on the role of the IMF in negotiating currency disputes between countries.

Looking Ahead

There is a lot going on right now. Earnings season has just gotten underway, the US economy continues to struggle, jobs are not being created, US banks are suspending foreclosures assuring the housing recovery will be even longer and more painful, and the mid-term elections are looming just a few weeks away.

Equity markets around the world continue to rise.

This is when relative strength analysis helps bring clarity to the barrage of seemingly unrelated economic data hitting investors.

Based upon current analysis I continue increasing my exposure to equity markets. Broadly speaking, US and international equities are preferred; however, commodities are making a strong showing recently and I will be looking to add more commodities to portfolios. Small and mid-capitalization stocks are preferred over large cap, equal-weighted indexes are preferred over capitalization-weighted indexes, and I continue to favor Real Estate, Consumer Discretionary, and Telecom among broad economic sectors. Recently, the Materials and Industrials sectors have shown excellent relative strength and are worth watching.

My guidance on international markets remains unchanged. Emerging Markets are preferred over developed ones; however, the relative strength advantage of emerging markets is narrowing making most international investments good for now.

The weak US dollar has certainly caused commodities to increase. Gold is holding strong at record levels and remains firmly positive on a relative strength basis. I would be cautious about entering into new positions here, but would retain existing positions. There may be an opportunity to purchase gold on a pull back. Oil and oil service stocks are showing strong technical moves and are attractive.

Bonds continue to rally and are very expensive right now. Looking at my broad asset categories, bonds have fallen below commodities and rank only above currencies at the present time. However, many bonds continue to provide a solid investment in portfolios and I am not looking to reduce positions for now. Investment grade corporates, preferred, emerging markets, high-yield, and intermediate-term treasuries have the best relative strength in my opinion.

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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

Stock markets at home and abroad cooled last week, but September 2010 will go down as the best September since 1939.

For the week the Dow Jones Industrial Average (DJIA) lost 31 points (-0.28%) and the S&P 500 lost 2 points (-0.21%) marking the first down week after four consecutive weeks of gains. For the month of September the DJIA gained 7.62% and the S&P 500 gained 8.63%. As of market close on Friday, the DJIA is up 3.45% for the year and the S&P 500 is up 2.34%.

Energy, Telecom, and Utilities were the best performing broad sectors while Technology, Real Estate, and Financials lagged. Real Estate, Consumer Discretionary, and Telecom have the strongest technical scores indicating greater relative strength over the past six months or so, while Financials, Health Care, and Energy continue to be at the bottom. Smalland Mid-capitalization stocks continue to outperform large cap stocks, and the equal-weighted S&P 500 index outperformed the capitalizationweighted index.

The MSCI (EAFE) World Index posted a modest gain of 0.20% last week and for the month of September gained a strong 9.33%. For the year, this broad international index is down just 0.82%. This past week saw Brazil take the top spot for the countries I follow for the first time in quite a while, followed by Thailand and Turkey. Spain was the worst performer along with Switzerland and France. Spain's troubles were primarily a result of a credit rating cut by Moody's Investment Services on Thursday. Don't take your eye off the European sovereign debt situation.

The big story of the week has been the surge in commodities. I believe this is primarily attributable to the renewed strength of the Euro and the general weakness of the US dollar. Friday's Euro close of $1.3790 was nearly a 3 cent gain from last Friday's closing Friday of $1.3491. This marks an 8.28% gain since the last Friday in August and puts the Euro within 5.25 cents of its 2009 closing of $1.4316. This is a continuation of the narrative from last week's update where I discussed the impact of the Fed's possible return to "quantitative easing."

Gold continued to climb closing the week at $1318.80 and oil broke through $80 to close at $81.58. A weaker US dollar makes commodities cheaper to non-US dollar buyers. Nearly all commodity contracts are conducted in US dollars and international buyers must convert their currencies into US dollars when they buy. When the US dollar is weak, the effective cost to non-US buyers falls. Basic economics says that demand will rise when goods become less expensive and this is certainly happening to most commodity prices right now. Good manufacturing data out of China also helped spur demand for all commodities.

US Treasuries pulled back slightly this week with the 10-year yield closing up to 2.6250% from last week's close of 2.6070%.

THE DOLLAR IS FALLING

Countries devalue their currencies for very selfish reasons. Principally they want to drive internal economic growth through exports and a cheap currency helps do that. Members of the Federal Reserve spoke all during the week discussing the pros and cons (mostly pros) of the Fed taking renewed action to help jump-start the economy through the purchase of US Treasuries. There are many long-term political and economic problems with this cheap dollar strategy which I simply cannot summarize in a short update, but economic historians look at the Great Depression in the '30's and Japan in the "80's and '90's for examples of the long-term economic harm that can come from this type of policy.

However, the stock market likes this kind of support today. Dollars sloshing through the US economy find their way into the stock market (anyone remember what happened in 1999 as the Fed significantly increased the supply of money in anticipation of Y2K) and stock valuations inevitably rise. The great September in markets here and abroad came at a time when economic data has failed to show any appreciable recovery. Whenever I read a headline today the economic news is still bad, just not as bad as it has been. The economy is expanding but at an ever slowing rate. Most economists now believe the likelihood of deflation or the US going into a second recession is remote and certainly factored into September's gains. However, part of the reason the US markets were down last week was attributable to the reality that economic data just isn't good. So the tug-of-war continues and I anticipate these markets will continue to be sensitive to releases of economic data.

Looking Ahead

The most significant economic data point to be released next week is Friday's unemployment report. Consensus is anticipating the unemployment rate to remain around 9.6%. The real focus will be on private sector job creation. I do not expect a great number, but as I have sad, numbers do not have to be great these days to get a strong move in the market.

We are now down to the last four weeks before the mid-term elections. The markets are likely to rally on the election of more "business friendly" legislators. I will follow this and other developments closely.

US equities and International equities are my preferred asset classes at this time. The greatest strength remains in the small and mid-capitalization stocks. Expect commodities to continue to show strength if the US dollar continues to fall against the Euro and other currencies. Emerging markets remained favored over developed ones especially in Asia and Latin America.

International bonds, particularly those from emerging market regions have shown recent strength. US bonds continue to hold their own and have proven to be a solid investment this year. I believe yields are what they are and will remain steady for the foreseeable future.

Gold is at record highs and will continue to trade at these levels for now.

On a different note, I want to draw your attention to a story in the Wall Street Journal on October 2nd regarding the break-up of an international computer-crime ring that is accused of stealing $70 million primarily from businesses and municipal governments. While individuals were not the primary target this time, I want to remind each of you to review your statements closely each week. I have encountered friends and clients who have been affected by these types of criminals who took small amounts (under $50) from their accounts. Please pay attention to the details of your statements.

If you have any questions about the overall relative strength of your portfolio and would like my analysis, please do not hesitate to give me a call.

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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

Markets have rallied in September amidst a wall of uncertainty. The Dow Jones Industrial Average (DJIA) gained 252 points (+2.38%) and the S&P 500 added 23 points (+2.05%) to extend the previous week's gains. For the month the DJIA is now up 8.33% and the S&P 500 is up 9.33% pushing both indexes firmly into positive territory. For the year, the DJIA is up 4.14% and the S&P 500 is up 3.01%.

Technology, Consumer Discretionary and Telecom were the best performing broad sectors while Real Estate, Financials and Utilities lagged. Real Estate, Consumer Discretionary, and Industrials have the strongest technical scores indicating greater relative strength over the past six months or so, while Financials, Health Care, and Energy continue to be at the bottom. Small- and Mid-capitalization stocks continue to outperform large cap stocks.

The MSCI (EAFE) World Index posted a weekly gain of 2.77% outpacing US indexes yet again and for the year is now down just 1.02%. This past week bucked the trend in place for most of the year as a number of European countries including Poland, Sweden, the Netherlands, and France, joined Thailand and Israel for top spots in the performance ranking. Chile, Austria and Malaysia were all positive but at the bottom last week. Thailand, Indonesia, Chile, and Malaysia remain at the top of the year's best performing countries of those I follow.

The Euro has surged in recent weeks closing Friday at $1.3491 up 8 cents (+6.4%) in the past two weeks as confidence in Europe grows and a belief that the Federal Reserve will begin to weaken the dollar in order to stimulate the US economy.

Gold has also surged recently pushing over $1300 per ounce recently. The reasons for gold's climb to new heights are tied directly to what is making the US dollar weak-the Fed.

Oil closed last Friday at $76.49 virtually unchanged and locked within the $10 trading band between $70 and $80 per barrel. This appears to be a sign that the oil markets and economic markets may be breaking their link that has been in place for much of the year. I have stated a number of times that oil appeared to be a barometer of the expected view of the global economy; however, it appears that oil is increasingly trading on fundamental market factors such as the swelling inventory of supply keeping a lid on oil prices.

US Treasuries have rallied these past two weeks driving yields back down to a Friday close of 2.6070%. Treasuries, the Euro, Gold, and Oil are all tied to a common view of expected Fed actions.

WHAT IS UP WITH THE FED?

When the Fed met on September 21st it set the stage for what has happened in the markets since. The Fed implied that the US economy is recovering at a slower pace than it would like, that inflation is lower than desired, and suggested that further "quantitative easing" is possible. This quantitative easing, or QE as the cool people like to call it, is simply how the Fed to sticks more money (money supply) into the economy to spur business activity (and inflation).

The Fed is able to control the money supply by the actions it takes with the Federal Open Market Committee (FMOC). In a simplistic explanation, the Fed simply buys bonds (government, agency and corporate) from banks for cash with the expectation that the banks will then lend the money to businesses to stir the economy. A key byproduct of this action is to keep interest rates low which in turn causes the US dollar to drop against other currencies. Let me explain how this happens.

All economics boils down to two words: supply and demand. Prices move in response to each. Interest rates are a signal of this tug-of-war between borrowers and lenders. By suggesting that the Fed will step in to help the economy expand, borrowers and lenders understand this means the Fed will buy bonds and significantly increase the supply of cash washing through the economy. With this large supply of cash relative to demand, interest rates are held in check. Because interest rates are low, lenders of cash will steer clear of lower returning bonds (i.e. US treasuries) and this in turn dampens the demand for US dollars in international markets pushing the US dollar down in value. See how these are all interconnected?

Finally, many investors fear that this injection of cash into the economy will spur high inflation. How much inflation is anybody's guess. The Fed will try to keep this inflation under control by continuing to manipulate the money supply. If the Fed fails, then there is the chance of much higher inflation. Fear of the Fed's inability to control inflation is prompting the push of gold prices to record highs.

Looking Ahead

The S&P 500 has moved and closed above 1140. This is a positive development for the equity markets and comes after several strong weeks. Not surprising, this move is coupled by US Equities moving into one of the two favored major asset categories (Cash was replaced) as reported by DorseyWright & Associates. International Equities is the other favored asset class. I am increasing my exposure to stocks at this point in time.

I continue to prefer small and mid capitalization stocks for the US market along with the most technically strong sectors such as Real Estate, Consumer Discretionary and Industrial stocks. Emerging markets remain favored with regards to international investments with an emphasis on the Asian markets.

Gold is at record highs and it remains a clear play on uncertainty. Oilappears range bound and I am very uncertain when it will break out one way or the other.

Bonds have continued their strength in 2010. I still favor a slight over-weighting in bonds.

The technical factors regarding the markets are positive and I am adjusting my weightings accordingly. However, there remains an undercurrent of concern about the economy in the form of slow economic growth, high unemployment, failing home prices, the specter of higher taxes, and questionable effectiveness of all the Fed's move to name a few. So while I am pleased at the recent strength in the markets, I remain very wary and on guard.

If you have any questions about the overall relative strength of your portfolio and would like my analysis, please do not hesitate to give me a call.

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

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

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

Sincerely,

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

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

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

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

All indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poors. The Dow Jones Industrial Average is based on the average performance of 30 large U.S. companies monitored by Dow Jones & Company. The Dow Jones Corporate Bond Index is comprised of 96 investment grade issues that are divided into the industrial, financial, and utility/telecom sectors. They are further divided by maturity with each of the sectors represented by 2, 5, 10 and 30-year maturities. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe.

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