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July 2010

Dear Valued Clients and Friends,

Coming into the April-June quarter, stocks were on a roll. A slow grinding rally in March and April suggested that investors had put the Greek credit crisis and fears of a slowing Chinese economy behind them. However, despite the rally in U.S. stocks through April, there were troubling undercurrents as emerging markets and other international stocks tired and turned weak. By the end of April and beginning of May, those undercurrents took the rest of the market down. A frightening "flash crash" on May 6th looked like it might have offered the capitulation day that brings corrections to a conclusion. But it turned out to be only the beginning as the depth of investor concerns delivered a horrendous month of May. That was followed by a near 10% drop in the final two weeks of June as the market limped into quarter-end.

We have wondered whether second quarter corporate earnings reports will deliver some good news and support the cyclical bull move in place since last summer. So far, however, negative news and global worries have snuffed out every rally effort this year. Though July began with an oversold bounce, it's certainly not clear that the market will be able to mount any sustainable move higher. Still, unlike the fall 2008 "sell everything!" liquidity crisis, the recent move lower has not been as pervasive, thus far. For example, our MTA Income portfolio (+3.6% for the year) is reflecting broad strength in income positions, including positions that are occasionally correlated to stocks, such as pipelines and mortgage REITs. Similarly, high yield bonds have overcome the May weakness and bounded back upward, diverging from stocks as shown in the chart below.

Asset Class Performance Apr-Jun 2010

This support for at least some risk assets keeps hope alive that the market can put in a bottom and return to better days.

In a broader context, this is playing out in classic secular bear market fashion. Investor psyches remain damaged from the 2008 market meltdown leading money to flow into bonds rather than stocks, despite the attractiveness of a sharp stock rally in 2009. Investor's preference for bonds remains undeterred despite yields at extremely low levels. P/E ratios are continuing to fall as earnings recover while stocks stall. Investors are unwilling to commit to stocks at any price, overwhelmed by myriad fears. This is what a secular bear market delivers. It's not about the economy so much as investor reluctance to take risk. Some combination of news events usually feeds these fears preventing them from being fully overcome and kicking off the type of secular bull market enthusiasm seen throughout most of the 1990s.

The market's current angst can be traced back to last October. After a sharp rise in stocks ushered in a possible new bull market, sovereign debt woes came to the fore, first in Dubai and then in Greece. The Dubai issues were fairly quickly resolved, but the Greek problems would not go away and instead spread to include other Eurozone nations. Europe's lack of experience in having to address such a collective European Union financial crisis was evident perhaps in the halting manner of the prescribed remedies. This uncertainty of solution fed the uncertainty markets were feeling already in their gut. Adding fuel to this nervousness was a growing feeling that things were not all well in China. Clearly concerned with a possible real estate bubble, China continued taking steps to rein in lending and slow down the economy. Compounding these factors has been a general stalling of improvement in U.S. economic metrics. Though it's quite common for a recovering market to pause and consider the oft-rumored though seldom realized double-dip recession, the list of worries above has caused this market to be very fragile and increasingly volatile.

With corporate earnings kicking off any day, it remains possible that the market will shift gears again by determining that a double-dip recession is not on the horizon. First, companies must convince investors that a positive future holds continued strong earnings growth; in other words, convince investors that the stalling macro indicators are a temporary blip. Second, investors need to become believers that stocks can hold and deliver future gains, gains over and above the 4-5% that bonds are offering. There has been little to suggest investors are anywhere near that point given the action of the past couple of months.

Here at MARKETTREND, our MTA Wealth Builder, MTA Sector, and the newest kid on the block, MTA Income, are all well ahead of the market thus far in 2010. Our MTA Index and MTA World Index are largely tracking the S&P 500 as we turn the corner into the second half of the year. Find our performance charts on our website at http://www.markettrendadvisors.com/images/MTA_performance.pdf.

Note that we have streamlined our fee structure which resulted in a 10% reduction in fees for clients of our MTA World Index strategy. As always, feel free to contact us at 512-255-8722 with any questions or concerns.

Thank you for your continued confidence and support.
To future profits,


Don Lansing
Chief Investment Officer.

Garrett Beauvais
Portfolio Manager
MTA Index, MTA World Index, MTA Sector, MTA Income

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MARKETTREND Advisors, Ltd.
3720 Gattis School Road #800-214
Round Rock, TX 78664


About MarketTrend Advisors

MarketTrend Advisors is an investment advisory firm that specializes in the trend-following strategies outlined in this report. We offer a variety of strategies that can be used to build portfolios to meet almost any investment objective. We divide our strategies into two main groups: "Long" strategies and "Trend" strategies. The Trend strategies follow the trend up or down. The "Long" strategies are typical investment portfolios that usually remain fully invested, potentially raising cash or moving to income-focused investments when the market is weak. We have a variety of "Long" strategies depending on how aggressive or conservative you want to be. These strategies will make their money when the market is moving higher. The "Trend" strategies will provide protection in a down market and add to gains in an up-trending market. By combining the Long and Trend strategies you get all the components needed to build a successful long-term portfolio:
  1. A portfolio invested in the best performing indexes, ETFs, or stocks
  2. Substantial exposure to global growth through international holdings
  3. Protection for your overall portfolio from down-trending markets When the market is going up, you benefit as aggressively as you wish.
When the market is going down, your assets are protected, or even profiting. Over time, you will see returns that exceed the market if only by AVOIDING market corrections and bear markets. By using one of our more aggressive long strategies in an uptrend, you will see even better performance.

Disclaimer
  1. MarketTrend Advisors, Ltd. is an independent, S.E.C.-registered investment advisor.
  2. Other Securities Industry Affiliations or Activities. MarketTrend Advisors, is not registered as a broker or dealer, nor do we have any partners or employees who are affiliated with any broker or dealer. See S.E.C. Form ADV, Part II for official declarations.
  3. MTA portfolio strategies assume risk and no assurance is made that investors will avoid losses. No representation is made that clients will or are likely to achieve profits or incur losses comparable to those shown. Performance results are shown for illustration and discussion purposes only. The performance information has not been audited. However, the information presented is believed to be accurate and fairly presented. All performance figures in this presentation are net of management fees and commissions. Management fees are charged to actual client accounts on a monthly basis. Accounts include both taxable and non-taxable IRA accounts.
  4. Regarding the MTA Blend strategy: This strategy was migrated into the MTA Wealth Builder strategy and closed in December 2008.
  5. Regarding actual performance: Actual performance for all strategies includes all commissions as well as management fees (fees range from 1% to 2%). Actual performance statistics are based on the inception date of each strategy through the end of the last business day of the most recent month listed in the monthly performance section of this report. Starting with Q4, 2006, returns include only assets of Fidelity clients who were fully invested in their respective strategies. Returns before Q4, 2006 include all Fidelity client assets regardless of investment status. Results do not include the assets of clients at other brokerage firms.
  6. Regarding future performance: Past performance may not be indicative of future results. Therefore, you should not assume that the future performance of any specific investment or investment strategy will be profitable or equal to corresponding past performance levels.
  7. S&P 500 refers to the Standard & Poor's 500 Large-Cap Corporations Index. The index is designed to measure performance of the broad based US market and consists of 500 American companies. This index is used for comparative purposes only. (Data is taken from Yahoo! Finance.)
  8. MarketTrend Advisors is not liable for the usefulness, timeliness, accuracy, or suitability of any information contained in its web site or of any of its services. The user understands that the information given can and will fail to predict the direction and magnitude of market price movements and the user can lose money when using this information.
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