T RHODES T Telephone: 484-278-473 Email: richard@rhodes-capital.com Web Address: http://www.rhodes-capital.com T 213 4 4 3 3 2 2 Dow Transportation Avearge (Daily) Bear Wedge Set-Up - The bearish wedge setup is showing 7 signs that a downside break is imminent as the model has forged a 6 bear- 6 ish hook lower. This simply means a test of major support is forthcoming. 8-day BLI (4.6382) DJ TRANSPORT 3-DMA -DMA 29 21 211 212 213 214-7 6 6 4 4 3 3 2 2 NOTE: We are on vacation this week in Vermont, and will be providing updates in today s form throughout the week. WORLD MARKETS ARE LOWER THIS MORNING in response to yesterday s press conference by US Secretary of State Kerry that points to some type of military action in Syria in the very near future. As soon as Mr. Kerry took to the podium and began to speak, the US stock market began to decline and erased all the gains for the day. This morning, the losses are mounting, with European bourses all lower by over -1.%, while the S&P futures down over -9 points, bond yields in both the US and Europe are lower reflecting a move towards safety. The US dollar is higher across the board with the exception of the Japanese Yen and the Swiss Franc. Crude oil is flat, while gold prices are the clear beneficiary of this uncertainty rising over +$19/oz. In our opinion, the countertrend rally is over, and lower prices are forthcoming in the weeks and months ahead. It is just that simple, and when we see the S&P cash trade below the recent lows at 1642 then the potential for a month-end close below 164 is possible. This latter level would put in place a very bearish key monthly reversal to the downside, and emphatically ring the bell that a high will have been put in for months into the future perhaps not to be seen until mid-214 or later. This is obviously a key level for us; and it is clearly marked with a line on the S&P daily chart on page 2. TRADING STRATEGY: Quite simply, a major top is forming around current levels looks to be in place, with yesterday s weakness reversing the countertrend rally. Now, we ll expect an extension lower towards our downside targets for the S&P at 13-to-16. As result, we are buyers of the Russell 2 inverse ETF (TWM) once again this morning on the opening.. RHODES 1 TUESD 213
S&P INDEX/ BROAD MKT INDICATORS 17 S&P INDEX 17 16 16 1 1 14 1987-22-211 Major Trendline Resistance 3-DMA 6-DMA 164 LEVEL 16 16 1 1 14 14 2-DMA 14 13 13 13 38-DEMA 13 12 12 14-day Model Weakening - 4-day Model Peaking - % Above 1-DMA - - Neutral % Above 2-DMA 9 8 7 6 4 Intermediate-Term Model -DMA 1-DMA A bearish break lower The 1-dma 1-DMA breakdown is bearish 9 8 7 6 4 ch April May June July August September November 213 February April May June July August September N S&P TECHNICAL COMMENTS A TOP IS IN PLACE FOR NOW: The overbought condition and the trendline support breakdown has resulted in prices weakening back into the rising 6-dma For the moment, support can be expected to prove its merit, with a small countertrend rally. However, the weakening volume/ breadth beneath the surface will allow for a resumption of the extension lower to test major support amid an oversold condition. How deep a correction is the question. To this matter, we ve noted rather consistently that our target for the first major correction since the November lows is lower into the slowly rising 38-dema the very same as the 211 summer correction. We view this -1% decline as en fuego with the breakdown of the 1684 level. The requisite 38-dema test will likely provide the next big buying opportunity in late October/November time frame. RHODES TECHNICAL INDICATOR REVIEW: The 2-day has peaked at the +8 overbought level, while the 4-day model is peaking, and about to put in place a negative divergence, and further confirm a larger correction. The % of stocks above their 1-dma is back to oversold levels at the 1% level. The % of stocks above their 2-dma stands at 78%... flat from the prior close. The 87% level marked previous highs. The -dma/1-dma cross breakdown now confirms a larger correction. Bottoms form between 3%-4%. The Intermediate-term Model has broken below the 1-dma; a bearish signal. 2 TUESD 213
MODEL PORTFOLIO POSITIONS I Crude Oil 2x Short SCO 3-yr Bond 2x Long Last: $ 28.73 TGT: $ 61. Entry: $ 31.9 STP: $ 28. TMF Last: $ 46.38 TGT: $ - Entry: $ 48.88 STP: $ - 4-day BLI (-7.86827) 4-day BLI (-7.88) - - - - 14-day BLI (-.9772) 2-day BLI (-4.7876) - - - The 14-day model has turned higher; hence a mean reversoin excercise is underway. 4 8-DMA UltraShort CRUDE OIL ETF 6-DMA - 4 9 9 8 8 7 7 6 2-DMA 2x Long 2+ year Bond 7-DMA 9 9 8 8 7 7 6 4 3-DMA 4 6 4-DMA 6 3 3 3 3 The decline is far below all the moving averages; which given 4 the model setups...argue for mean reversion higher. 4 Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep Oct N May June July August September November 213 February April May June July August September N Russell 2 2x Sho TWM Last: $ 1.69 TGT: $ - Entry: $ 1.92 STP: $ - N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - 4-day BLI (-7.19884) - - 14-day BLI (2.26714) - - UltraShort RUSSELL 2 ETF 3 18-DEMA 3 2 7-DMA 2 The distance 2 below the 18- dema is quite large, and thus we ll expect mean reversion higher to develop. 2 1 ul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep Oct N 1 RHODES 3 TUESD 213
TRR MODEL PORTFOLIO: PAID-TO-PLAY No. Trade Date POS Share No. Name SYM Beta Port % Invest Entry Price Current Price Unrealized P/L Percent P/L Stop Loss Point TARGET EARN DATE 1 7/8/13 L 1,472 Crude Oil 2x Short SCO (.63) 23.7% $ 46,96 $ 31.9 $ 28.73 $ (4,66) -9.9% $ 28. "C" $ 61. N/A 2 8/9/13 L 371 3-yr Bond 2x Long TMF (.12) 9.6% $ 18,119 $ 48.88 $ 46.38 $ (927) -.1% $ - "H" 3 8/1/13 L 4,83 Russell 2 2x Short TWM (.96) 4.2% $ 72,961 $ 1.92 $ 1.69 $ (1,4) -1.4% $ - "H" 4 N/A.% $ - $ - $ - $ -.% $ - N/A.% $ - $ - $ - $ -.% $ - 6 N/A.% $ - $ - $ - $ -.% $ - 7 N/A.% $ - $ - $ - $ -.% $ - 8 N/A.% $ - $ - $ - $ -.% $ - 9 N/A.% $ - $ - $ - $ -.% $ - 1 N/A.% $ - $ - $ - $ -.% $ - 11 N/A.% $ - $ - $ - $ -.% $ - 12 N/A.% $ - $ - $ - $ -.% $ - 13 N/A.% $ - $ - $ - $ -.% $ - 14 N/A.% $ - $ - $ - $ -.% $ - 1 N/A.% $ - $ - $ - $ -.% $ - TOTAL (1.71) 73.% $ 138,4 $ (6,641) "<" Denotes Change 213 RECAP Starting Balance $ 21,13 "T" = TRADE Closed Positions $ (24,833) "C" = CLOSE Open Positions $ (6,641) "E" = EXIT Dividends $ 177 "H" = HOLD PORTFOLIO YTD (Gain/Loss) $ 178,832 $ (31,298) -14.89% S&P YTD 16.17% Over/(Under) Performance -31.6% 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 http://www.finance.yahoo.com; unless clearly stated in the trade instructions below. 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: 1. Russell 2 Small Cap 2x Short (TWM) buy a 2% long position on the opening. TRADE EXECUTIONS: 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 Email 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 Email. 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 TUESD 213
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 TUESD 213