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THE RHODES REPORT 2/15/13


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#1 OEXCHAOS

OEXCHAOS

    Mark S. Young

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Posted 15 February 2013 - 02:21 PM

THE RHODES REPORT

CAPITAL MARKET COMMENTARY
FRIDAY – FEBRUARY 15, 2012
Telephone: 484-278-4073
Email: richard@rhodes-capital.com
Web Address: http://www.rhodes-capital.com

WORLD MARKETS ARE “FLAT-TO-LOWER” GOING
INTO EXPIRATION FRIDAY: There is very little in the
way of clear trading this morning as Japan’s NIKKEI fell by
-1.2% as the G-20 struggles over its message to the markets
related to the manner Japan has pushed the yen lower.
There are some that say this is Japan’s internal policy; there
are some saying this is acceleration of the currency wars
that seem to be in vogue these days. Regardless, confusion
breeds contempt, and traders are moving away from
the NIKKEI for the moment. The yen is strengthening, but
it has done so only so far in that a potential bottom is forming.
Short-covering rallies are being sold; but then again
EVERYONE, and we mean EVERYONE is short the yen
at this juncture. Certainly as the G-20 meeting progresses
through this weekend coupled with the US President Day
holiday on Monday will lend support to the
supposition that volatility is about to increase
– perhaps markedly. Be prepared.
On a technical matter, we’ve seen the various
indices move within a very narrow range and
by some metrics – in this case, it is the narrowest
5-day range seen since last April. There
have 14 of these circumstances such as this
since the March-2009 low, and in 10 of those
cases, either a top was forming, or the beginnings
of a decline were evident. In the other 4
circumstances, a breakaway rally was developing.
Given the extreme overbought conditions
seen as well as incredibly bullish sentiment
– newsletter sentiment is as bullish as
it’s been since the 2000 technology highs.
Hence, we’ll vote with the topping pattern ver-sion
of this circumstance for now – a correction in the least,
but understanding that perhaps a rise in interest rates may
fuel a furthering of the breakaway rally.

ON THE US ECONOMIC FRONT: There are several
reports of interest. First, the NY Empire State Manufacturing
Survey for January came in at 10.0, which is far the
consensus of -2.0 – and is positive for the first time in several
months. Second, we’ll see the Treasury’s International
Capital flows, and we feel this report will take on added
importance given the “currency wars” that are starting to
dominate capital market thinking. Third, the University of
Michigan’s “preliminary” Consumer Confidence figure for
February is to be released at 9:55am ET; and the consensus
is expected to rise from 74 to 75. Lastly, Cleveland
Fed President Pianalto is speaking at 2:15pm ET; subject
not yet known.

TRADING STRATEGY: We will continue to reiterate
that the short-term S&P and Russell technical conditions
are “frothy” (note comments above), and in need of a correction
or a sideways movement in the least to brings them
back to technical health. Over the past two weeks, the S&P
futures have gained “very little”, which is putting the bias
towards stagnation. This, combined with the rather
pedestrian A/D figures and volume patterns indicates
churning and perhaps distribution has developed.
This is to be expected given the S&P 1982-to-2003
bull market trendline that was violated in 2008 is being
“kissed”. Quite commonly, prices are unable to overcome
this important resistance level and begin to
decline. However, given the long weekend and the
potential increase in volatility, we have no new trades.
Good luck and good trading,


“FORECAST”

STOCKS: The European debt contagion has been “kicked down the road”
as Spanish and Italian short-and-long term bond yields have moderated
recently given the ECB “plan” to buy bonds of up to 3-years in maturity...but
only if asked; and only if conditionality is imposed upon those asking.
The Fed has also changed its game from “inflation-fighting” to “unemployment
fighting” with the new move to QE-4; and with any war — they
will go further and farther than anyone believes in printing money to
achieve their ends...regardless of their balance sheet concerns.

STRATEGY: The S&P 500 remains above the 160-wma long-term support
level at 1275; and the standard 200-dma support level at 1404. Collectively,
with the breakout above the Sept-2012 highs at 1475 has run
into major overhead resistance, and shall likely find “rough sledding” at
this level given the relative under performance of the NASDAQ 100. We
are long of gold; and we are short the Russell 2000.

Mark S Young
Wall Street Sentiment
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