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EPTEMBER11, 2012
“FORECAST”
STOCKS: The European debt contagion remains front and center.
Span-ish and Italian short-and-long term bond yields have moderated recently given the ECB “has a plan” to step in to buy’em — but on conditionality. This has supported stocks in the short-term, but won’t solve the overrid-ing debt and fiscal problems...kickoverrid-ing the can down the road so to speak. So enjoy it while it lasts; now it is in the polititian’s hands.
STRATEGY: The S&P 500 remains above long-term support at the
160-wma at 1223; which delineates bull/bear markets. However, the 200-dma support level at 1340 remains the bulls “Maginot Line.” We’ve noted this is perhaps one of the “weirdest rallies” we’ve ever seen, and it causes us a great deal of consternation. That said, we are looking to be short sell-ers on rallies upwards of 1450-to-1475...lots of resistance up there.
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centerpiece of the Eurozone’s debt resolution strategy. This could also put a damper upon Mr. Draghi’s plan to buy short-term Spanish and Italian debt; and it could push stock sharply lower.
Too, we have the much vaunted release by Apple (AAPL) of the iPhone 5 on Wednesday, and this could well prove to move AAPL higher after yesterday’s -2% loss. We are interested in how AAPL trades from the simple fact that while we like AAPL products – we believe they are somewhat “overvalued” and if the market decides to turn lower; and AAPL disappoints tomorrow with not enough “bells and whistles” – then the opportunity to be short the NASDAQ 100 is very good. Hence our interest is piqued and growing.
OVERNIGHT PRICES Quotes at: 7:31am EST
INDEX LAST DAILYCHG CHG % YTD YTD %
Morning Futures
S&P 500 up 1,431.00 4.50
Nasdaq 100 up 2,792.50 8.00
10-year Note Yield up 1.68% 2.5 bps
Crude Oil up $ 96.58 $ 0.05
Euro € up 1.2774 0.0004
Yen ¥ up 1.2827 0.0046
Gold up $ 1,733.20 $ 1.40
Foreign Indices
FTSE 100 Index down 5,777 -16.3 -0.28% 205 3.67%
German DAX up 7,214 0.5 0.01% 1,316 22.31%
French CAC down 3,493 -13.1 -0.37% 357 11.38%
Japan Nikkei 225 down 8,807 -62.0 -0.70% 352 4.16%
SSE China Composite down 2,121 -14.3 -0.67% -79 -3.59%
Spain Madrid General down 790 -5.3 -0.67% -68 -7.91%
Italy FTSE MIB down 15,982 -109.9 -0.68% 892 5.91%
US Indices
Dow Industrials down 13,254 -52.0 -0.39% 1,036 8.48%
Nasdaq 100 up 3,104 0.0 0.00% 636 25.77%
S&P 500 Large-Cap down 1,429 -8.8 -0.61% 171 13.64%
S&P 400 Mid-Cap up 1,000 0.0 0.00% 121 13.79%
S&P 600 Small-Cap up 473 0.0 0.00% 58 13.91%
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Telephone: 484-278-4073 Email: richard@rhodes-capital.com Web Address: http://www.rhodes-capital.com
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WORLD MARKETS ARE LOWER THIS TUESDAYand we can foresee today being a rather “dull and boring” trading day as the markets await Wednesday-through-Friday’s onslaught of political and economic meetings. For now, the S&P futures are bucking the trend and rising by +5 points; and we see the USD falling once again; pre-cious metal prices are modestly higher, while bond yields are higher. In other words, although the worlds’ stock mar-kets are lower, there is a bit of “risk-on” in the brisk Sep-tember air.
Tomorrow, we have the German Constitutional Court deci-sion rule on the legality of German participation in the two bailout funds – the temporary ESFS and the permanent ESM funds. If they are ruled unconstitutional, then “chaos” shall reign in the Eurozone, for these bailout funds are the
Dow Transports (Daily)
“Six of One; Half Dozen of the Other”
Aug Sep Oct Nov Dec 2011 Mar Apr May Jun JulAug Sep Oct Nov Dec 2012 Mar Apr May Jun Jul Aug Sep Nov Dec 2013 Mar A 4000 4250 4500 4750 5000 5250 5500 5750 6000 6250 6500 4000 4250 4500 4750 5000 5250 5500 5750 6000 6250 6500 180-DMA DJ TRANS AVERAGE -5 0 5 -5 0 5 40-day BLI (-0.10751)
The narrowing cone is im-portant, for a breakout ei-ther way shall support the broader market in its next larger move. For now, prices are below the 180-dma; a breakdown would mean a bearish head & shoulders top pattern.
Forecast
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Lastly, let’s turn to Thursday’s final day of the 2-day FOMC meeting. Bloomberg is reporting that market participants are 99% sure the FOMC is going to ease monetary policy on Thursday; which in our mind means it is somewhat dis-counted. This is the highest “sure rate” attached to a QE move since the Fed started instituting them in 2009. Hence, we’ll wonder aloud if there isn’t a bit of disappointment with the announcement. And, we’ll go on record as stating that we believe they shall only lengthen the period of o ZIRP right now; and will wait until after the election before an-nouncing a bond buying spree. Call us contrarian; but
re-gardless of whether we are right or wrong – the potential for a sell-off in the days following the announcement are rather high.
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TRADING STRATEGY: Let us state right now that wehave no dog in this hunt; we could care less about which way the market wants to move, but a direction and follow-through is what we seek. Today, we’ve brought forth chart of the Dow Transports, which many Dow Theory folks will understand generally lead the markets higher. If the Trans-ports are lagging, then it is a major divergence. At present, there is a major divergence present, but the fact of the matter is that we can paint two pictures out of the daily chart – a bullish consolidation to higher highs; and “head & shoulders” top to lower levels.
If they break higher, then obviously we would want to be long the Transports and probably some railroads to be sure. Too, we would want to be long energy and steel. If not, then we’ll simply want to be short the S&P 500 or the Russell 2000. In either case, we want to be long of gold shares through September, with an eye upon October…which doesn’t tend to be particularly nice to gold shares. Per-haps this year is different; perPer-haps it is not. We’ll simply follow our models at this juncture.
2006 2007 2008 2009 2010 2011 2012 2 1.20 1.25 1.30 1.35 1.40 1.45 1.50 1.55 1.60 1.20 1.25 1.30 1.35 1.40 1.45 1.50 1.55 1.60 200-DMA EURO FX Continuous -5 0 5 -5 0 5 20-day BLI (7.48850)
Euro Currency (Daily) “A Bullish Consolidation”
Forecast
Note the red line below, which is the neckline of a bearish “head & shoul-ders” top. Also note prices are back to the 200-dma resistance level; prices should weaken from here.
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1. None. 1. China ETF (FXI) — bought a 10% long position at an
average of $33.20.
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 perfor-mance may be lower or higher than the perforperfor-mance data cited. The perforperfor-mance 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 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.
Trade Orders:
Trade Executions:
The Rhodes Report is published by Rhodes Capital Management, Inc. Mailing address: 111 Presidential Blvd. Suite 135; Bala Cynwyd, Pennsylvania 19004. 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 $159/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 informa-tional 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.
No. Trade Date
Long/ Short
Share
No. Name Ticker Beta Port % Invest
Entry Price Current Price Unrealized P/L Percent
P/L Stop Loss Point TARGET
Earnings Release 1 8/8/2012 L 448 Newmont Mining NEM 0.01 10.8% $ 21,022 $ 46.90 $ 51.36 $ 1,999 9.5% $ 49.25 TRADE $ 55.00 N/A
2 8/17/2012 L 548 Goldcorp GG 0.02 10.9% $ 21,085 $ 38.45 $ 42.16 $ 2,034 9.6% $ 41.25 TRADE $ 48.00 N/A
3 8/27/2012 L 971 Gold Miner's Juniors GDXJ 0.02 10.5% $ 21,237 $ 21.87 $ 22.98 $ 1,078 5.1% $ 21.25 TRADE $ 29.00 N/A
4 9/10/2012 L 643 China ETF FXI 10.0% $ 21,344 $ 33.20 $ 33.06 $ (87) -0.4% $ 31.98 TRADE < $ - N/A
5 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 6 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 7 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 8 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 9 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 10 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 11 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A 12 N/A 0.0% $ - $ - $ - $ - 0.0% $ - $ - N/A TOTAL 0.05 42.3% $ 84,688 $ 5,025 Model Portfolio Inception ($100k): January 1, 2005 2012 RECAP Starting Balance $ 244,451
2005 Performance: +20.34% Closed Positions $ (37,467)
2006 Performance: +47.57% Open Positions $ 5,025
2007 Performance: +20.84% Dividends $ 285
2008 Performance: -3.75% PORTFOLIO YTD (Gain/Loss) $ 212,294 $ (32,157) -13.15%
2009 Performance: +7.45% S&P 500 YTD 13.64%
2010 Performance: +10.22% Over/(Under) Performance -26.79% 2011 Performance: -0.08%
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NOTHING HAS CHANGED: THE HIGHER“ZIG-ZAG” FORMATION FAILED INTO OVERHEAD
RESIS-TANCE YESTERDAY, which means this overhead
resis-tance level is rather important. This level should “cap” any price rally towards the 1450-to-1460 zone. In our opinion, we don’t believe sufficient demand is available to push prices through this zone, with the recent lack of supply and increase in complacency suggestive that resistance will bring out sellers. We’ll simply watch for now; looking for a selling inflection point.
To confirm a decline, then a breakdown of the 1403 level would be required. Certainly the % of stocks above their 10-dma is overbought, with the % of stocks above their 200-dma is at its highest level since June...and into resistance.The 200-dma crosses at 1324.
TECHNICAL INDICATOR REVIEW:
$
The 20-day and 40-day model have now turned lower in bearish fashion.$
The % of stocks above their 10-day mov-ing average is at “overbought” levels.$
The % of stocks above their 200-day mov-ing average stands at 69%... flat from the prior day’s close. The 150-dma remains stiff overhead resis-tance.$
The Intermediate-term Model remains higher in bullish fashion; but is showing signs of topping out. With the 40-day model lower, then a turn lower would confirm a larger correction is un-derway.Forecast
Sep Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov
50 50 10-DMA 50 50 150-DMA 50-DMA 50 50 -5 0 5 -5 0 5 -5 0 5 -5 0 5 1100 1150 1200 1250 1300 1350 1400 1450 1100 1150 1200 1250 1300 1350 1400 1450 380-DEMA 65-DEMA 200-DMA 18-DMA S&P 500 INDEX Possible divergence
Has turned lower
Overbought
50-dma/150-dma resistance is proving its merit again
Topping Intermediate-Term Model % Above 200-DMA % Above 10-DMA 40-day Model 14-day Model
Overhead resistance is rather strong, and proved its resistance yesterday. A break of the recent lows at 1403 would suggest lower prices.
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Last: $ 51.36 TGT: $ 55.00 Entry: $ 46.90 STP: $ 49.25
New m ont Mining NEM Goldcorp
Last: $ 42.16 TGT: $ 48.00 Entry: $ 38.45 STP: $ 41.25
GG
Last: $ 22.98 TGT: $ -Entry: $ 21.87 STP: $
-Gold Miner's Junio GDXJ
Last: $ 33.06 TGT: $ -Entry: $ 33.20 STP: $ 31.98
China ETF FXI
Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov 45 50 55 60 65 70 45 50 55 60 65 70 400-DMA 90-DMA
Newmont Mining Corp. (Hldg. Co.) -5 0 5 -5 0 5 20-day BLI (6.92738) -5 0 5 -5 0 5 40-day BLI (3.43234)
The distance below the 400-dma is narrowing, a breakout above trendline resistance would confirm a bullish double bottom.
Forecast
Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov 35 40 45 50 55 35 40 45 50 55 500-DMA 75-DMA GOLDCORP ORD -5 0 5 -5 0 5 20-day BLI (7.30733) -5 0 5 -5 0 5 40-day BLI (5.68002)
The declining wedge and 75-dma breakout are bullish; look for mean reversion towards the 500-dma.
Forecast
Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov 20 25 30 35 20 25 30 35 400-DMA 125-DMA
MARKET VECTOR JUNIOR GOLD MINERS ETF -5 0 5 -5 0 5 20-day BLI (6.44023) -5 0 5 -5 0 5 40-day BLI (5.09253)
Prices have regained the 125-dma and trendline resistance; mean reversion to the 400-dma is underway.
Forecast
ep Oct Nov Dec 2012 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 29 30 31 32 33 34 35 36 37 38 39 40 41 29 30 31 32 33 34 35 36 37 38 39 40 41 280-DMA 50-DMA FTSE China 25 -5 0 5 -5 0 5 14-day BLI (-5.23123) -5 0 5 -5 0 5 40-day BLI
Recent support has held, and we can view this pattern as a bullish falling wedge; a 50-dma breakout would confirm higher prices.
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 20-14-period and 40-14-period work well with daily charts. Obviously, the 40-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.
