July 5, 2010
L a n e A s s e t M a n age m e n t
The theme of this month’s
Commentary is to be
mindful of the economic
environment in which one
invests, but to use techni-
cal analysis to guide invest-
ing decisions. This WILL
NOT guarantee success,
but will help you avoid
being whipsawed by com-
peting rationales from in-
vestment pundits.
As always, I welcome your
comments and sugges-
tions.
— Ed Lane
Stock Market Commentary
Mind the Fundamentals; Trade
the Charts
Following an 8% drop in May for the S&P 500, the
index fell another 5% in June. What happened?
In a few words, nothing much good. Private sec-
tor employment is anemic and well below the re-
quirements needed to match the growth in the
workforce, new home sales are setting record
lows, the highly regarded Economic Cycle Re-
search Institute’s (ECRI) Weekly Leading Index
level has been falling since the end of April, con-
sumer confidence is declining, etc., etc.
What’s really going on, in my opinion, is that in-
vestors are realizing that the economic head-
winds facing the world’s economies will sharply
curtail growth prospects if not overwhelm them.
And they are in the process of reducing risk (as I
have advised in my recent Commentaries).
Think back to the period prior to October 2007,
around the beginning of the current recession.
During that time, credit was cheap and mortgages
were too easy to obtain. Nearly everyone pros-
pered from this environment (some by taking to-
tally unwarranted risk that would exacerbate the
problem when reality set in) and employment
grew. The result was not only a credit-induced
asset bubble, but also an employment picture that
was built on sand.
In the period from late 2007 to late 2008/early
2009, everything unraveled. The canary in the
coal mine was that it became increasingly clear
that mortgage defaults would exceed expecta-
tions based on all prior experience. Once that
fact sunk in and reality emerged, all those institu-
tions (AIG, Fannie/Freddie, Citibank, etc., etc.)
could not unwind their holdings fast enough. As
asset values collapsed and defaults began to ex-
ceed expectations, employment that derived
from what we can now call the “phony economy”
unwound. As we all now know, that affected em-
ployment in not only those financial institutions
directly involved in mortgages and their spinoffs
but, through the multiplier effect, jobs throughout
the economy.
Once it became clear (or believed to be clear) in
2008 that the underpinnings of the financial sys-
tem and, more broadly, the global economy,
would not recover on their own, governments
around the world began throwing money at the
problem to replace the disappearing consumer
and mitigate the impact on global GDP. While it
is arguable whether the stimulus was spent wisely
or was even a good idea, I would say it clearly had
a positive effect on the world’s stock markets as
corporate profits began to reemerge (largely
driven by profits derived from abroad not to
mention severe cost cutting). In addition, the rate
of job losses in the U.S. slowed and private sector
employment picked up.
As the recovery continued, two major problems
emerged in 2010:
 First, the economic growth in the emerging
economies came with a rise in inflation that
those governments took immediate steps to
curtail through fiscal and monetary measures.
 Second, beginning in Greece but expanding
quickly around the developed economies, was
awareness of growing sovereign deficits that
were reportedly reaching critical levels.
Both these events have resulted in current and
prospective contractionary measures that may
help in the long run, but are surely not going to
do anything helpful in the short run. And the
markets see this, too. Furthermore, the idea that
current unemployment rates will take many years
to unwind is now gaining traction. (Where, ex-
actly, will new jobs come from? Corporate tax
relief, sought by some, is unlikely to help as cor-
porations already have huge cash reserves and
still don’t spend. Ditto wealthy individuals as
Warren Buffett would say. And additional govern-
ment stimulus appears politically nearly impossi-
ble)
Did you have to know all this to have been a suc-
cessful investor? I don’t think so. Examine the
charts on the following pages and consider your
outcome had you “played” them perfectly with
the timeframes and risk tolerance most applica-
ble in your situation. I know I didn’t and made
my share of mistakes.
Live and learn.
 Page 2
L a n e A s s e t M a n age m e n t

With price bouncing off both the 75– and 150-day moving average and the continuation of their downward slope, momentum
for the S&P 500 remains decidedly negative. Worse yet, the index has pierced resistance at 1050 and needs to recover soon
else it will seek out the next line of resistance around 950, an additional 10% decline. By my calculation, the next line of resis-
tance would be at 875.
This would be a good time reduce exposure to risk assets.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes which cannot be invested into directly. Past performance is no guarantee of future results.
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L a n e A s s e t M a n age m e n t

Longer term moving averages in this 15-year weekly chart indicate that the index has lost its upward momentum while the
MACD is signaling an impending reversal to the downside.
While no ―system‖ is perfect, from a technical perspective, the S&P is in a precarious position. Couple that with what we
know about coming austerity measures recently announced at the G-20 meeting for developed economies, and aggressive risk
management is advised.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes which cannot be invested into directly. Past performance is no guarantee of future results.
 Page 4
L a n e A s s e t M a n age m e n t
The emerging markets (EM) index convincingly broke through support at 950 and now looks at 815 as the next line of resis-
tance. The index has now retraced the gains it has made since last September and has provided no return for buy-and-hold
investors since October 2008. Downward momentum is increasing and the EM index finds itself in a precarious place. If
there’s hope to be found, it can be found in the fact that the EM index has fallen only 12.3% vs. 15.3% for the S&P since the
most recent high point in April (normally, EM is more volatile). Also, the MACD is not as decidedly bearish as for the S&P.
That said, not all EM markets show the same stress. Selectivity with EM investments is advised.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes which cannot be invested into directly. Past performance is no guarantee of future
results.
 Page 5
L a n e A s s e t M a n age m e n t
This 15-year chart for the EM index shows a slightly more hopeful pattern in that the longer term 75-week moving average
still has positive momentum. On the other hand, the faster 30-week moving average and, especially, the MACD show signifi-
cant risk to the downside, comparable to the S&P’s MACD in its long term chart on page 3.
Technically speaking, EM looks nearly as precarious as the S&P 500. Strong risk management is advised until a reversal is
clearly indicated.

The S&P 500 and the MSCI Emerging Markets indexes are unmanaged indexes which cannot be invested into directly. Past performance is no guarantee of future results.
 Page 6
L a n e A s s e t M a n age m e n t
For the last 20 years, the price of gold has been reasonably inversely correlated with the value of the dollar (measured, in this
index, against currencies of selected developed economies). In 2010, that pattern seemed to be brake as both gold and the
dollar have advanced. Today, it appears that both gold and the dollar have become storehouses of value but gold’s advance
could also be a bet on a future decline in value of the dollar — or simply a decoupling to reflect the difficulty of matching the
supply of gold with increasing demand. Regardless of the underlying rationale for gold investments, given what’s going on in
traditional markets, some exposure to gold appears to be warranted on a fundamental basis.
Investors in gold should be prepared for a pullback, such as occurred in 2008, if for no other reason than profit-taking. De-
pending on conditions at the time, any pullback over 10% could represent a wonderful buying opportunity.

The gold and U.S. dollar indexes are unmanaged indexes which cannot be invested into directly. Past performance is no guarantee of future results.
 Page 7
L a n e A s s e t M a n age m e n t
Reflecting the ―flight to safety‖ as investors seek the safety of U.S.Treasury bonds, and also reflecting the corresponding de-
cline in U.S.Treasury bond rates over, at least, the last 20 years, this exchange-traded fund holding 7-10 year Treasury bonds
has been on a slow but steady upward climb. Notice the recent increase in volume as well as the emerging strength of the
MACD technical indicator.
Funds of this type appear to be a safe haven for now, but will be damaged if and when U.S.Treasury rates reverse their down-
ward trend as they did sharply in the first half of 2009 (and are expected to do so again when the U.S. embarks on a path of
monetary tightening).

The iShares Barclays 7-10 Year Treasury bond ETF prospectus can be found at www.us.ishares.com.
Page 8
L an e A ss et M an ag em ent
Disclosures
Lane Asset Management is a Registered Investment Advisor with the
States of NY, CT and NJ. Advisory services are only offered to clients
or prospective clients where Lane Asset Management and its represen-
tatives are properly licensed or exempted.
No advice may be rendered by Lane Asset Management unless a client
service agreement is in place.
Investing involves risk including loss of principal. Investing in interna-
tional and Emerging Markets may entail additional risks such as cur-
rency fluctuation and political instability. Investing in small-cap stocks
includes specific risks such as greater volatility and potentially less li-
quidity. Small-cap stocks may be subject to higher degree of risk than
more established companies’ securities. The illiquidity of the small-cap
market may adversely affect the value of these investments.
Investors should consider the investment objectives, risks, and charges
and expenses of mutual funds and exchange-traded funds carefully for a
full background on the possibility that a more suitable securities trans-
action may exist. The prospectus contains this and other information. A
prospectus for all funds is available from Lane Asset Management or
your financial advisor and should be read carefully before investing.
Note that indexes cannot be invested in directly and their performance
may or may not correspond to securities intended to represent these
sectors.
Investors should carefully review their financial situation, making sure
their cash flow needs for the next 3-5 years are secure with a margin
for error. Beyond that, the degree of risk taken in a portfolio should be
commensurate with one’s overall risk tolerance and financial objectives.
The charts and comments are only the author’s view of market activity
and aren’t recommendations to buy or sell any security. Market sectors
and related exchanged-traded and closed-end funds are selected based on his opinion
as to their usefulness in providing the viewer a comprehensive summary of market
conditions for the featured period. Chart annotations aren’t predictive of any future
market action rather they only demonstrate the author’s opinion as to a range of pos-
sibilities going forward. All material presented herein is believed to be reliable but its
accuracy cannot be guaranteed. The information contained herein (including historical
prices or values) has been obtained from sources that Lane Asset Management (LAM)
considers to be reliable; however, LAM makes no representation as to, or accepts any
responsibility or liability for, the accuracy or completeness of the information con-
tained herein or any decision made or action taken by you or any third party in reli-
ance upon the data. Some results are derived using historical estimations from available
data. Investment recommendations may change without notice and readers are urged
to check with tax advisors before making any investment decisions. Opinions ex-
pressed in these reports may change without prior notice. This memorandum is based
on information available to the public. No representation is made that it is accurate or
complete. This memorandum is not an offer to buy or sell or a solicitation of an offer
to buy or sell the securities mentioned. The investments discussed or recommended in
this report may be unsuitable for investors depending on their specific investment ob-
jectives and financial position. The price or value of the investments to which this re-
port relates, either directly or indirectly, may fall or rise against the interest of inves-
tors. All prices and yields contained in this report are subject to change without notice.
This information is intended for illustrative purposes only. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS.
Periodically, I will prepare a Commentary focusing on a specific investment issue.
Please let me know if there is one of interest to you. As always, I appreciate your feed-
back and look forward to addressing any questions you may have. You can find me at :
www.LaneAssetManagement.com
Edward.Lane@LaneAssetManagement.com
Edward Lane
Lane Asset Management
P.O. Box 666
Stone Ridge, NY 12484