Richard Rhodes Rules?

We evaluate here the market commentary of Richard Rhodes, previously available via Zacks.com over the period March 2004 through October 2005. Richard Rhodes, editor of “The Rhodes Report” newsletter, is one of Zacks’ “pros.” His “proprietary models…provide specific trading recommendations not found at any other shop on or off of Wall Street.” The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that:

• Richard Rhodes relies on both fundamental and technical data to forecast the direction of the market. Some of his commentaries do not provide market direction forecasts.
• Mr. Rhodes focuses on interest rates and energy prices as principal indicators of market prospects.
• Richard Rhodes’ forecast sample size is small, so confidence in measurement of his accuracy is low.
• Richard Rhodes has apparently stopped offering market commentary vai Zacks.com. We have no alternate source for his outlooks. We retain this record for historical reference as part of an overall analysis of guru accuracy.

The Rhodes Capital Management, Inc. web site offers 17 “Trading Rules” that will “make money year in and year out.”

Richard Rhodes was a sometimes participant in MSN Money’s “Strategy Lab”, where he has the distinction of swinging from top performer in Round 7 to bottom performer in Round 8.

See Guru Grades for a snapshot of the accuracy of various experts in predicting the direction of the U.S. stock market, including links to evaluations of the commentaries of other individual market pundits and gurus.

		S&P 500 Index
Date	Comments from:  Richard Rhodes via zacks.com	5-Day Return	21-Day Return	63-Day Return	254-Day Return
3/22/07	…the probability of a test of the highs now appears to outweigh a larger correction. If this is the case, then we would expect to see prices consolidate in bullish fashion in the days ahead; nothing material, to be sure, but something on the order of a sideways movement that will allow for higher prices.	-0.8%	3.2%	5.5%	-6.5%	+
2/27/07	…we should expect this liquidation to continue for more than “one or even two days”. This could very well be the beginning of the long awaited -5% to -10% correction.	-0.3%	1.3%	8.3%	-4.9%	-
11/8/06	,,,what happens in November and December…if Rhodes and his team were “bettin’ men”, then they would have to certainly side with the bulls.	0.8%	1.7%	3.8%	6.9%	+
9/26/06	Stocks decline in this environment. Rhodes and his team don’t expect stock prices to fall in a material manner – only on the order of -10% or so.	-0.2%	3.4%	5.6%	15.8%	-
9/11/06	Turning to the commodity markets…look upon this increase in volatility and prices declines as endemic to “taking risk off the table”, with the stock market soon to follow suit.	1.7%	4.1%	8.3%	14.2%	-
7/12/06	…negative implications for the current earnings season as well as stock prices in general.	0.1%	1.0%	7.3%	23.1%	-
4/27/06	…the commodity markets are in for a “major” correction that will leave a trail of tears or blood in the streets. This is how history deals with parabolic moves higher.	0.2%	-2.3%	-3.2%	14.2%	+
3/22/06	…further downside movement is expected, which over the next several days fits in perfectly with the post-March expiration weakness before month-end strength is seen. …we won’t see these highs again for quite some time in the future.	-0.2%	0.5%	-5.0%	9.5%	-
1/12/06	…foreign markets are now underperforming the U.S. …as the year progresses…this theme will stand out more and more.	-1.9%	-1.8%	0.2%	10.9%
12/8/05	[Rhodes] had looked for a material slow down or even a recession into first two quarters of 2006…we very well may get that, but the probability…is higher for the latter parts of 2006 and perhaps in 2007.	1.2%	2.7%	2.0%	12.4%	-
10/27/05	…look to the corporate bond market to tell us if they are worried or not. If they aren’t…then this would be supportive to equities given the relative short-term oversold condition that now persists.	3.5%	6.7%	8.9%	16.9%	+
10/12/05	…very little in the way of progress has been made in the Gulf with respect to offshore oil production… This can’t be positive for stocks.	1.5%	4.5%	9.9%	16.3%	-
8/29/05	…the world stock markets have downside risk.	1.7%	0.4%	4.6%	7.6%	-
7/25/05	Rhodes and his team suspect a material slowdown by year-end; with an increasing probability of a recession next year. …an August high in the major indices may develop in seasonal fashion that begins to discount this very real and increasing probability.	0.5%	-0.9%	-4.2%	2.8%	+
7/18/05	…reassess your risk profile going into this earnings season…it will be volatile indeed.	0.6%	-0.1%	-3.6%	2.3%	+
7/11/05	Rhodes and his team see still higher prices…for distillates such as diesel and heating oil moving into the winter months. They don’t believe the equity markets have discounted this as of yet.	0.1%	1.0%	-2.3%	1.9%	+
6/27/05	…expect further weakness to permeate stocks for at least the next several weeks…perhaps longer.	1.2%	3.9%	2.1%	6.9%	-
6/20/05	…if [oil] prices spike higher…expect a rush for the door to ‘lock in’ hard won profits by the increasingly bullish hot money.	-2.1%	1.6%	1.8%	2.4%	+
5/25/05	…look at taking a short position in the overall markets sooner rather than later.	1.2%	0.1%	2.3%	5.9%	-
4/20/05	…bearishness is still where most traders lie – Richard Rhodes and his team included over the medium term, but much less so over the near term.	-1.4%	2.5%	6.5%	15.0%	-
4/8/05	…Rhodes and his team…are taking a ‘measured’ approach as this rally hasn’t engendered any type of confidence. In fact…they are inclined to believe it will fail and do so miserably in the days ahead.	-3.3%	-0.2%	1.4%	8.9%	+
3/8/05	…divergences in the major averages dictate the topping process…the critical question for them is one of timing of when to add to or become aggressive from the short perspective.	-1.8%	-2.3%	-1.8%	5.1%	+
2/28/05	…this expert is rather nervous in the near term.	1.8%	-1.8%	-0.5%	7.1%	-
2/8/05	…remain modestly bullish here; although…consider this a countertrend rally that should be sold.	0.7%	0.6%	-2.0%	5.4%	+
1/20/05	…interest rates are rising…growth will be even slower than analyst revised earnings estimates.	-0.1%	2.2%	-3.2%	7.8%
1/6/05	…any and all strength early in the US indices [should] be sold…perhaps rather hard. …They are heavily short here, but don’t see this as a tradable bottom just yet.	-0.9%	1.2%	0.3%	8.6%	+
12/22/04	…the combination of rising interest rates and rising energy costs are surely likely to ‘crimp’ them beyond what stock prices are discounting at current levels. This opens up an opportunity to be aggressively short in the near-future – Rhodes is doing so modestly at present… This is a prelude to a larger market decline…	0.3%	-3.8%	-3.1%	4.9%	+
12/9/04	…lower stock prices should result.	1.2%	0.1%	1.7%	6.0%	-
11/26/04	…expect higher US stock prices…but not much more before a larger decline materializes in 1Q 2005.	0.7%	2.6%	2.4%	6.3%	+
11/15/04	Richard Rhodes’ equity market stance remains bullish; however he is becoming more cautious…his targets remain S&P 500 index to 1250-1300.	-0.6%	1.9%	1.9%	4.0%	+
11/4/04	…the trend is clearly higher in all the major indices. But the fact prices close’d mid-range’ speaks to caution…a period of consolidation is warranted. How much remains to be seen, but in all probability somewhere on the order of several days. Then, Rhodes will be able to add to his existing long positions.	1.0%	2.5%	2.4%	5.3%	-
10/6/04	…have a rather bearish bias…underlying strength argues for higher prices after a short-term pullback. However, this short-term pullback has the ‘potential’, and he stresses ‘potential’ to develop into something larger. Conversely, Rhodes can make the case for a ‘momentum led’ rally to new highs in a rather short period of time; thus he remains on the sidelines in terms of his ‘big picture’ view…and prefer to remain short specific issues that merit doing so.	-2.5%	1.7%	4.0%	4.7%	+
9/21/04	…we suspect the September fed funds hike is the last hike of the year…leaving the rate at 1.75%.	-1.7%	-2.3%	5.7%	7.6%	-
9/1/04	…still sticking with a neutral pose…with a short-term bias towards long positions.	1.1%	2.3%	6.1%	10.1%	+
8/16/04	…the risk reward of holding…short positions in the short-term is modestly unfavorable given the potential for a short-covering rally, while in the intermediate-term is still quite favorable. …he is not choosing to [cover.]	1.5%	3.8%	8.7%	13.1%	-
8/2/04	…there is a bullish bias even though growth is decelerating.	-3.7%	-0.2%	1.9%	12.5%	-
7/22/04	The symptoms are there for a declining market, …though a short and sharp bounce may be coming…be very nimble in exiting any long positions and putting on short positions…the risk of short positions is rather high in the short-term, but the longer-term charts certainly suggest something of a larger magnitude is developing on the downside.	0.3%	0.1%	0.6%	12.1%	-
7/9/04	…Rhodes and his team are short.	-1.0%	-4.3%	2.6%	9.8%	+
6/24/04	…he must consider this rally prone to “failure” at some point – either at the highs, below or above the highs…the current rally is “terminal”. …play…both sides of the long/short table at this point given the change in trading environment – preferring today to err upon the long side…	-1.0%	-5.0%	-2.4%	4.4%	-
6/10/04	…remain neutral…”react” to trading as it develops.	-0.1%	-1.9%	-1.6%	5.9%	+
5/27/04	…the oversold condition might keep the indices moving upward for a little while longer.	0.1%	1.3%	-1.4%	7.2%	+
4/29/04	…a large correction could be in the cards. …as the decline develops…he will add to his short positions and gauge his long positions.	0.0%	0.6%	-1.2%	4.2%	-
3/26/04	…he wants to see more from the market before changing from a short position to a long one.	3.0%	2.7%	2.4%	6.5%	-

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