T T Telephone: 484-278-473 Email: richard@rhodes-capital.com Web Address: http://www.rhodes-capital.com F 213 Russell 2 Small Cap Index (Daily) Correction Imminent?? Price Oscillator (8.17287) The march to new all-time highs is stagnating, 16 with prices at +8% above the 9-dma 1 an overbought condition. In the past, this has led to corrections of come proportion, but we view this one as a tradable correction that will test the 38-dema. RUSSELL 2 CASH INDEX NOTE: This report is in shortened form this morning due to unforeseen family circumstances. We beg you indulgences this morning. TRR will return in full bloom on Monday. 14 13 WORLD MARKETS ARE ENDING T WEEK 12 11 1 LOWER ON BALANCE as Japanese equity 99 98 97 96 9 94 93 92 markets are leading them lower. The NIKKEI closed lower by -3.% as their June CPI data was relatively red hot with core CPI rising +.4% from 91 9 89 88 87 86 9-DMA year earlier levels. This is the fastest pace in - years; but one wouldn t believe this should have 8 84 taken the NIKKEI down by as much as it did as 83 81 78 76 74 81 78 76 74 82 8 77 7 73 8 77 7 73 79 38-DEMA 79 Abenomics appears to be bearing fruit. However, too much inflation may be a bade thing for their markets; at least that would partially explain the sharp decline, for we see no other reasons as to why the decline too place. Outside of this, Europe Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O remains in book squaring mode prior to the August holiday travel season. And in the US, there is only the University of Michigan final sentiment figures that aren t expected to change. TRADING STRATEGY: Nothing has changed. We think that the market has entered into a topping process as our 14- day model has now turned lower from overbought levels. But this doesn t mean stocks are ready to decline in earnest, but in fact complete a distribution top in the next week or two weeks. Certainly incoming earnings aren t supportive of current stock price levels; and the market will start to focus upon next week s Fed meeting on July 29-3 and an increasing probability that they will determine that tapering their buying campaign will be appropriate come September dropping it to $6 billion from the current $8 billion. Economists believe this to be the case, but the market hasn t yet come to the realization, and is setting itself up for a rather decline. We look to add to our short stock market position in TWM at the appropriate time. 16 1 14 13 12 11 1 99 98 97 96 9 94 93 92 91 9 89 88 87 86 8 84 83 82 1 F 26, 213
S&P INDEX/ BROAD MKT INDICATORS 17 16 16 1 1987-22-211 Major Trendline Resistance S&P INDEX 17 16 TR breakout 16 is holding 1 1 14 3-DMA 6-DMA 1 14 14 2-DMA 14 13 13 13 38-DEMA 13 12 12 14-day Model Overbought 4-day Model % Above 1-DMA Bottom at zero Neutral/divergence % Above 2-DMA 9 8 7 6 4 Intermediate-Term Model -DMA 1-DMA As good as it gets really 1-DMA 9 8 7 6 4 The 1-dma has broken bullishly higher for now ch April May June July August September November 213 February March April May June July August September S&P TECHNICAL COMMENTS NOTHING HAS CHANGED. The short-term very overbought condition resulted in weakness yesterday, and thus we believe a topping process has now officially begun. Quite simply, a tradable correction is a growing probability from near current levels the only question is how deep given the extension of other indices. We believe that the first major correction since the November lows will take prices lower on the order of -1% give or take a few percent for a test of the slowly rising 38-dema. And it is a test of the 38-dema that will likely provide the next big buying opportunity sometime in October/November time frame. We are apt to move to a short position a breakdown of the 1672 level in the days ahead. TECHNICAL INDICATOR REVIEW: The 2-day is trending higher, with the 4- day model bottoming thus far. The question is whether this is a bottom or ledge correction in a downtrend...so far it is the former. The % of stocks above their 1-dma is back to neutral levels. The % of stocks above their 2-dma stands at 88%...up +3% from the prior close. The 87% level has marked the previous highs, with the high -dma/1-dma levels putting us on guard for a breakdown...confirming a correction. The Intermediate-term Model has broken above the 1-dma; a bullish sign for now. 2 F 26, 213
MODEL PORTFOLIO POSITIONS I Crude Oil 2x Short SCO Euro 2x Short Last: $ 3.1 TGT: $ 61. Entry: $ 31.9 STP: $ 28. EUO Last: $ 18.4 TGT: $ 23. Entry: $ 19.9 STP: $ 18.2 4-day BLI (-8.1383) 4-day BLI (-.381) 14-day BLI (-4.648) 2-day BLI (-8.7114) The 14-day model has turned higher; 6 hence a mean reversoin excercise is underway. 4 UltraShort CRUDE OIL ETF 6-DMA 3-DMA 8-DMA 6 4 23. 23. 22. 22. 21. 21. 2. 8-DMA Euro 2x Short 2-DMA 23. 23. 22. 22. 21. 21. 2. 2. 2. 4 4 19. 19. 3 3 3 3 to form. 17. 19. 4-DMA 18. The head & shoulders bottom is 18. clear; the right shoulder continues 19. 18. 18. 17. 12 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O Russell 2 2x Sho TWM Last: $ 1.36 TGT: $ 22. Entry: $ 16. STP: $ - N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - 4-day BLI (-7.6883) 14-day BLI (-8.64313) 3 UltraShort RUSSELL 2 ETF 3 3 18-DEMA 3 2 7-DMA 2 The distance below the 18-2 dema is quite large, and thus we ll expect mean reversion higher to develop. 2 1 ay Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O 1 3 F 26, 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 (.6) 24.3% $ 46,96 $ 31.9 $ 3.1 $ (2,776).9% $ 28. "C" < $ 61. N/A 2 7/9/13 L 1,411 Euro 2x Short EUO (.17) 14.3% $ 28,82 $ 19.9 $ 18.4 $ (2,46) -7.3% $ 18.2 "T" $ 23. N/A 3 7/12/13 L 2,317 Russell 2 2x Short TWM (.47) 19.6% $ 37,6 $ 16. $ 1.36 $ (1,483) -4.% $ - "H" < $ 22. N/A 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 (1.3) 8.3% $ 112,113 $ (6,34) "<" Denotes Change 213 RECAP Starting Balance $ 21,13 "T" = TRADE Closed Positions $ (22,42) "C" = CLOSE Open Positions $ (6,34) "E" = EXIT Dividends $ 177 "H" = HOLD PORTFOLIO YTD (Gain/Loss) $ 181,81 $ (28,48) -13.9% S&P YTD 18.2% Over/(Under) Performance -32.1% 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: 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 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. 4 F 26, 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. F 26, 213