THE RHODES REPORT CAPITAL MARKET COMMENTARY FRIDAY JULY 13, 2012 FORECAST. ! TRADING STRATEGY: The past six-trading

Transcription

1 T RHODES T Telephone: richard@rhodes-capital.com Web Address: FAY Y Shanghai Composite (Monthly) Long-Term Support We ve been bearish of China, but any horse can have their day given that prices 4 are hard upon the 16-month moving 4average support level certainly a rally is warranted. We would look 3 upon anything over 26 as something to perk the ears up over. SSE COMPOSITE 16-MMA 1-MMA FORECAST STOCKS: The European debt contagion remains front and center. Spain and Italy bond yields remain high, but are off their worst levels after the EU Summit produced a vague pan-european banking supervisor and other ways to lower periperhal European bond yields. This is positive in the short-term, but will only provide a respite to lower stock prices. Also, China remains on a growth deceleration curve, with growing concerns of a very hard landing various estimates are centering in on the 7.% level and even lower. STRATEGY: The S&P remains above long-term support at the 16- wma at 12; which delineates bull/bear markets. However, the 2-dma support zone at 1266-to-1278 remains the bulls Maginot Line, while overhead resistance at 134-to-136 has also proven itself as resistance. After 6-down days in which very little was accomplished price wise, sentiment may be sufficiently bearish for a rally to materialize also point to the German DAX, which is higher by +1.%; China closed flat on her session.! TRADING STRATEGY: The past six-trading sessions have been lower, but the S&P futures are trading higher by +3 points after being higher by +7 earlier in the morning. Thus far, the S&P cash has found the ability to rally mid-to-late day the past 2-trading sessions, and we find this modestly positive for it tells us that rising trendline support is bringing in buyers, and sellers have been unable to close prices sharply lower. This increases the nearterm probability of a rally; and the character of that rally will tell us a great deal about whether we approach the 14 highs or not. Remember, July is one of the best months for stock market performance; and six-down sessions CAPITAL MARKET COMMENTARY! WORLD MARKETS ARE HIGR OVERNIGHT as the major news out is that China s GDP for 2Q came in at analysts forecast of 7.6%. Perhaps the markets are happy that it wasn t worse than expectations. What we found to be curious amongst the report however is that year/year fixed investment, June retail sales and industrial output all came in VERY close to what forecasts were no more than a few tenths of a percent off. However, we should note that this is the sixth straight quarter of lower growth; and below the 8.% figure that in past downturns has resulted in the Chinese authorities aggressively stimulating their economy. We ll surmise this is the reason we see a risk-on rally in all the commodity markets, where many commodities such as gold and crude oil are higher by +1.% or more. We can RHODES OVERNIGHT PRICES Quotes at: 7:7am EST INDEX Morning Futures LAST DAILY CHG S&P up 1, Nasdaq 1 up 2, year Note Yield up 1.48%.3 bps Crude Oil up $ $.78 Euro down Yen up Gold up $ 1,82.9 $ 17. Foreign Indices 1 F AY J CHG % YTD YTD % FTSE 1 Index up, % % German DAX up 6, % % French CAC up 3, % 17.44% Japan Nikkei 22 up 8, % % SSE China Composite up 2, % % India Sensex down 17, % 1,79 8.8% Brazil Bovespa up 3,421..% -3, % US Indices Dow Industrials down 12, % % Nasdaq 1 up 2,4..% % S&P Large-Cap down 1, % % S&P 4 Mid-Cap up 928..% 49.39% S&P 6 Small-Cap up 441..% %

2 CAPITAL MARKET COMMENTARY do tend to solidify bearish sentiment. Our point: we look for a rally through month end, when things become a bit more complicated. That said, as we noted in our S&P cash commentary this morning this could very well turn out to be like the June-July 211 period which once support was violated the S&P dropped from 13 to 11. We ll find out sooner rather than later. That said, we are long several energy positions given they all forged bullish key reversal patterns from their recent lows, which is one of the more powerful technical tools in our arsenal after a prolonged decline that takes our models into oversold levels. In fact, the energy sector is as oversold now as it was at the 28, 21 and 211 bottoms that produced rallies of between +2% and +%. At times, the lows can be tested before a material rally ensues. Lastly, POT continues to show bullish tendencies with the ongoing drought conditions, of which market participants are gaining expose to the farm trade. We were recently long Agriculture via DBA, but exited in front of the major USDA crop report. We d like to see a correction and consolidation before moving back into the position; but considered us interested once again if DBA moves lower back to its 2-day moving average at $28.. RHODES 2 F AY J

3 S&P INDEX/ BROAD MKT INDICATORS The 2-dma/38-dema convergence support level can be considered to have held another light test. Look for a test of the highs. 6-DEMA S&P INDEX 18-DMA 2-DMA 38-DEMA day 11 Model day Model % Above 1-DMA - Waffling Rising - - Neutral % Above 2-DMA -dma/1-dma -DMA resistance under attack 1-DMA Intermediate-Term Model Bottoming action 1-DMA Apr May Jun Jul Aug Sep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep S&P TECHNICAL COMMENTS # SINCE T DECLINE INTO MAJOR SUPPORT at the 2-dma/38-dema at 1278, prices quietly moved higher to higher highs before weakening over the past sixtrading sessions. We consider this a correction for the time being as long as the 18-dma/6-dema zone at continues to provide support. We ve had several closed at 1341; and now one at 133 it doesn t get much more tenuous than this. Our upside target is for a test of and perhaps break of the highs towards the 14 level before any material correction develops. However, we are cognizant this current period could prove similar to the June-July 211 pattern where a second high formed amidst a bullish pattern before prices plunged in earnest. The trigger was a breakdown of trendline support; the 18-dema and 6-dema and then 2-dma. RHODES TECHNICAL INDICATOR REVIEW: $ The 4-day model is now rising nicely from over from just above oversold levels, with the 14- day has begun to waffle back-and forth. $ The % of stocks above their 1-day moving average is now clearly back to neutral levels. $ The % of stocks above their 2-day moving average stands at 2%...down -2% from the prior day s close. The 1-dma/-dma convergence continues to provide resistance. $ The Intermediate-term Model has turned higher in modest fashion; which given the other indicators is supportive of higher prices. 3 F AY J

4 PORTFOLIO: RHODES AGGRESSIVE DISCRETIONARY No. Trade Date Long/ Short Share No. Name Ticker Beta Port % Invest Entry Price Current Price Total Unrealized P/L Percent P/L Stop Loss Point 1 6/29/212 L Potash POT.1 1.% $ 21,69 $ $ 43.9 $ 22,18 $ % $ 43. TRADE $ /2/212 L 1,84 Alpha Natural ANR.17 6.% $ 16,129 $ 8.74 $ 7.43 $ 13,712 $ (2,418) -1.% HOLD $ /2/212 L 394 Baker Hughes BHI % $ 16,129 $ 4.89 $ 38.8 $ 1,324 $ (8) -.% $ 37.7 TRADE $ /2/212 L 1,133 Nabors NBR.16 7.% $ 16,129 $ $ 13. $ 14,72 $ (1,44) -8.7% $ 12.4 TRADE $ 2. 7/2/212 L 279 Devon Energy DVN.9 7.2% $ 16,128 $ 7.74 $ 4.6 $ 1,266 $ (862) -.3% $ 4. TRADE $ N/A.%.% 7 N/A.%.% 8 N/A.%.% 9 N/A.%.% 1 N/A.%.% 11 N/A.%.% 12 N/A.%.% TOTAL % $ 86,2 $ 81,212 $ (4,994) "<" Denotes Change Model Portfolio Inception ($1k): January 1, RECAP Starting Balance $ 244,41 2 Performance: +2.34% Closed Positions $ (28,89) 26 Performance: +47.7% Open Positions $ (4,994) 27 Performance: +2.84% Dividends $ Performance: -3.7% PORTFOLIO YTD (Gain/Loss) $ 21,69 $ (33,761) % 29 Performance: +7.4% S&P YTD 6.14% 21 Performance: +1.22% Over/(Under) Performance -19.9% 211 Performance: -.8% TARGET TRADE PRICE NOTE: All entry and exit prices for stocks are the average of the high and low prices for the trading day as provided for byyahoo! s website at DISCLAIMER: "The performance data shown represent past performance, which is not a guarantee of future results. Investment returns and principal value will fluctuate, so that investors' securities, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. The illustrations and charts in this report are educational only and do not take into consideration your personal circumstances or other factors that may be important in making investment decisions. This report is not a recommendation to buy or sell a particular security. Trade Orders: Trade Executions: 1. None. 1. None. The Rhodes Report is published by Rhodes Capital Management, Inc. Mailing address: 111 Presidential Blvd. Suite 13; Bala Cynwyd, Pennsylvania 194. All contents copyright Rhodes Capital Management, Inc. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden, as is regular dissemination of specific forecasts and strategies. Otherwise, feel free to quote, cite or review if full credit is given. The Rhodes Report is published daily, including special reports as market conditions warrant. Correspondence is welcome, but volume of often precludes a reply. Subscription rates are: $279/ annually or $19/six-months. Visa, MasterCard and American Express accepted. Delivery is available via Internet download and . This report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The report is published for informational purposes and is not be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The report is based on information obtained from sources believed to be reliable, but is not guaranteed as being accurate, nor is it a complete statement or summary of the securities, markets or developments referred to in the report. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this report are subject to change without any notice and The Rhodes Report is not under any obligation to update or keep current the information contained herein. Past performance is not necessarily indicative of future results. The Rhodes Report accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this report. RHODES 4 F AY J

5 MODEL PORTFOLIO POSITIONS I Potash POT Alpha Natural DAILY CHART Last: $ 43.9 TGT: $ 2. Entr y: $ STP: $ 43. ANR Last: $ 7.43 TGT: $ 1. Entry: $ 8.74 STP: 4-day BLI ( ) 14-week BLI ( ) day BLI (7.1677) DMA Potash WMA Alpha Natural Resources 2-WMA The overhead 18-dma was violated in bullish fashion along with trendline resistance. Look for higher prices. 6-DMA Aug Sep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep The decline 1 is rather massive, with the model at severe oversold levels. A rally back to $1 would be reasonable Baker Hughes BHI Last: $ 38.8 TGT: Entr y: $ 4.89 STP: Nabors NBR Last: $ 13. TGT: $ 2. Entry: $ STP: $ week BLI ( ) 14-week BLI (-7.316) Baker Hughes Nabors Industries Ltd WMA WMA 3-WMA WMA 4 3 Trendline 2 support held the decline, with a bullish key 1 reversal higher forming two weeks prior. 1 7-WMA The bullish wedge is in place, with prices forming a bullish key reversal higher and challenging trendline resistance. Look for higher prices RHODES F AY J

6 MODEL PORTFOLIO POSITIONS II Devon Energy DVN Last: $ 4.6 TGT: $ 68. Entr y: $ 7.74 STP: $ 4. N/A Last: TGT: Entr y: STP: 14-week BLI ( ) Devon Energy Corp WMA 2-WMA Trendline support held the decline, with a bullish key reversal 4 higher forming two weeks prior N/A Last: TGT: Entr y: STP: N/A Last: TGT: Entr y: STP: RHODES 6 F AY J

7 The Blue-Line Indicator or BLI Explained The BLI is our simple momentum oscillator used for timing and trend decisions; we rarely if ever use other momentum indicators for we prefer to focus and understand one indicator really well rather than a basket of indicators that can at times be contradictory. Furthermore, we prefer to use the BLI in conjunction with basic chart patterns; it is our experience that this combination works rather well for type of trading style. Basically, the BLI it is a full stochastic indicator derivative of our own undertaking; our changes have been several, but primarily relate to smoothing the indicator in order to provide for better signals once it does in fact change directions. We use varying time periods dependent upon whether we are working with weekly or daily charts. We have found that a 14- period BLI works well with the weekly charts, whereas both a 2-period and 4-period work well with daily charts. Obviously, the 4-period BLI catches longer and more tidal changes in direction. We normally don t use these in our Daily Bulletin given its shorter-term time frame, but behind the scenes it plays a big part. When using the BLI with price charts; we look upon the following 3-factors as set-ups upon which the probability is highest to trade: 1. BLI Extremes: Oversold (-6 to -8)/Overbought (+6 to +8) When the BLI trades into either extreme, our reversal ears go up as a change in trend becomes a higher probability. This puts the risk/reward dynamic in our favor generally, but we won t take a position without well defined stop losses and perhaps prices are trading into support or resistance as the case may be. However, we must note that extreme conditions can and will become more extreme in a powerfully trending market; hence this is the caveat to trading with the BLI in isolation. 2. BLI Divergences: Positive/Negative A divergence is said to have occurred when the price and BLI do not make new lows/highs together. They in effect diverge, with the BLI not confirming the prevailing trend. If the BLI turns higher/lower from below a previous BLI low/high then a divergence is said to have occurred, of which the probability is increased that the trend is changing in favor of the BLI direction. 3. BLI Reversals from Positive/Negative Levels Another very good BLI trading pattern which denotes a strongly stock is when the BLI turn higher from already positive levels this suggests a strong upwards acceleration is underway. Conversely, a turn lower from already negative numbers suggests a strong downward acceleration is underway. RHODES 7 F AY J