The Rhodes Report

山上白云泉

The Rhodes Report

8/1/2008:  This past July-2008 was a very important month for the capital markets; crude oil peaked and traded lower by -11%. This is rather substantial to be sure, and one would be reasonable to believe that the demand/supply equation coupled with a daily technical oversold condition would push crude prices back higher. Perhaps it shall in the short-term, but we fear any and all rallies are going to be sold and sold rather aggressively to push prices towards $100/barrel by the November election. The reason as to the “why and how” it does so is left to the benefit of time.

We on the other hand, will note perhaps the most bearish of reversal patterns in crude oil – the “monthly key reversal lower.” This simply denotes exhaustion of the previous trend as July saw new highs above June’s, while new lows printed below June’s lows as well…with prices closing virtually on their lows as well. We’ll now argue that mean reversion is firmly in place, with a downside target of a meeting with the 50-month moving average currently near $70/barrel. Now given this is a monthly chart, it may a great deal of time to get there – and perhaps the moving average does move higher to meet prices at some point. That is a question for the future; we are now concerned that crude oil prices are headed lower and what the impact shall be upon the broader stock market. Will it be positive as it “juices” the consumer; or is it part of the de-leveraging process that sends the broader market and all sectors lower? Good questions…and we’ll explore those in the days and weeks ahead.

Therefore, we would use any declines in either Ryland Homes (RYL) or Toll Bros. (TOL) to put on a long position. We chose they two given they have performed relatively better than the Housing Index, which clearly broke its January lows. RYL and TOL did not; and if we are going to be long, then we want to be long that which is showing relative strength. As for risk…one can risk a break of the recent lows.

Good luck and good trading,

 

 Richard Rhodes

ETF Long/Short Portfolio Performance: FY-2007 +27.1%; YTD-2008 +15.7% PTP Long/Short Portfolio Performance: FY-2007 +20.8%; YTD-2008 +8.0%

5Hill

thanks

笨妞妞

Thanks as always!