10 Y TSY YLD NDX 44. Bernanke s comments last Wednesday haven t 42

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1 T RHODES T Telephone: richard@rhodes-capital.com Web Address: M ULY 1, 1, Year Note Yield (Daily) Topping or Consolidating?? 4-day BLI (7.3718) 1 Y TSY YLD NDX 44 Bernanke s comments last Wednesday haven t 42 produced weakness at this point. We can t believe some on the Fed like this, for they want 4 38 to avoid further surges higher in rates. Thus, 36 his upcoming testimony before Congress is likely to be somewhat dovish. 1-DEMA 1-DMA FORECAST STOCKS: The world economy is weakening: the US payroll tax increase and sequestration are pressuring the US economy; China is being pressured by Japan, and has dampened their housing market. the Eurozone remains mired in inaction. For now, although we feel that risk is being mispriced at current levels given recent pressure upon world economic figures and the developing pressure upon corporate margins/ earnings the consensus is that the world s central banks will save the day. STRATEGY: The S&P remains above the 16-wma long-term support level at 1337; and the standard 2-dma support level at 117. But perhaps more importantly, the distance above the 16-wma has has now faltered below the +23% bubble-like rally threshold. This is a warning sign to be sure; especially given 16 was violated to the downside. 32 Major 3 Resistance US ECONOMIC FRONT: This morning, there are only a few economic reports on the docket: June Retail Sales and the July NY Empire State manufacturing survey. Fed Governor Tarullo speaks at 8am ET concerning bank regulation. And, there is very little on the docket tomorrow in lieu of the Wednesday/ Thursday semi-annual testimony by Fed Chair Bernanke on the US economy. This used to be called the Humphrey-Hawkins testimony when it was required by law; nowadays this is not required, but simply a good will gesture by the Fed to provide for its own and Congress posterity As far as Fed Chair Bernanke s testimony and Q&A sessions are concerned, we expect him to be somewhat dovish and somewhat hawkish at the very same time. His comments last CAPITAL MARKET COMMENTARY WORLD MARKETS ARE HIGR ACROSS T BOARD: Asian bourses closed higher as China s GDP figures printed 7.% for the April-June period (7.7% for the January-March period), which is the 9 th quarter in the past 1 quarters that has shown weakness. This does not include however, the recent credit squeeze engineered by the PBOC and their subsequent loosening credit noose isn t reflected in these figures they should be even lower when they are reported 3-months hence. So, this has given risen to reform effort talk and the market is buying into this at the moment. As for European bourses, they opened rather sharply higher, but have since given back a majority of those gains at present. RHODES OVERNIGHT PRICES Quotes at: 7:32am EST INDEX LAST DAILY CHG Morning Futures S&P up 1, Nasdaq 1 up 3, year Note Yield up 2.6%. bps Crude Oil down $ $ (1.2) Euro down Yen down Gold down $ 1,277.3 $ (.3) 1 M CHG % ULY 1, YTD YTD % Foreign Indices Japan Nikkei 22 up 14, % 4, % SSE China up 2, % % German DAX up 8, % % Spain Madrid down % % Italy FTSE MIB up 1, % -822.% US Indices Dow Industrials up 1, % 2, % Nasdaq 1 up 2, % % S&P Large-Cap up 1, % % S&P 4 Mid-Cap up 1, % % S&P 6 Small-Cap up % % 1, 213

2 CAPITAL MARKET COMMENTARY Russell 2 Small Cap Index (Daily) Correction Imminent?? Price Oscillator (8.668) Thursday s trade was a gap higher, and it extended on Friday. At present, this is very frothy, which combined with the overbought +8% distance above the 9-dma a shortterm shorting trading opportunity is in place. RUSSELL 2 CASH INDEX 9-DMA 38-DEMA Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep Wednesday that exceptional accommodation will be needed for a very long time has given risen to thoughts that the FOMC will not taper in September; however, if the Fed does taper to $6 billion/month form $8 billion/month then exceptional accommodation remains in place. But we believe he will personally state that bond market has it all wrong right now, for 1-year note yields are this morning higher than when he gave last Wednesday s speech and this must concern the FOMC to some degree as they want to control the surge in interest rates, for they don t want to see them surge any further higher as it will force the Fed s hand to intervene in a different manner. TRADING STRATEGY: Nothing has changed we added an aggressive Russell 2 position on Friday (page 2 lead chart) as prices have gapped 1 higher into overhead trendline resistance. Quite clearly, we view this as frothy, and more so given it stands +8% above the 9-day moving average. 16 Now, in past instance where this 8% level has been 1 14 obtained, then a correction of some proportion has developed. And given this circumstance, then the odds favor a correction back towards major support levels. Outside of this, we have no compunc tion to add any additional positions in front of the volatility that is the Humphrey-Hawkins testimony 9 89 noted above On Friday, the NASDAQ 1 recorded its 13the consecutive up day, which beat out 29 s win 81 8 streak of 12-consecutive day of gains. Jason Goepfert of Sentimentrader noted that this has occurred 3-times previously, and in the next month the gains were +6.9%, -1.% and +4.1%. However, in the two subsequent months, then the losses were stark down -13.4%, -1.4% and -7.8%. The lesson simply means that August could be a good month, while the September/October time frame could be very volatile indeed to the downside. Good luck and good trading, Richard Returning to today s reports, the overall June Retail Sales figures are expected to rise by +.8% versus May s +.6% gain. If we exclude autos, then the figures are expected to show a gain of +.4% versus May s +.3% gain; excluding autos/gas/buildings, then the figure expected is +.3% versus May s +.3%. So, while there is some gain to be expected, it isn t terribly different than May s figures. As for the NY Empire manufacturing survey, it is expected to remain expansive at +, but that is lower than the +8 figure seen in June. RHODES 2 M ULY 1, 1, 213

3 S&P INDEX/ BROAD MKT INDICATORS Major Trendline Resistance 3-DMA S&P INDEX Bearish key reversal lower 6-DMA TR breakout is holding DMA DEMA day Model 12 Rising 4-day Model % Above 1-DMA Bottom or ledge Overbought % Above 2-DMA High moving averages Intermediate-Term Model 4 -DMA 1-DMA 1-DMA 4 The 1-dma is on the verge of a breakout ch April May June July August September November 213 February March April May June July August Septembe S&P TECHNICAL COMMENTS T BEARISH KEY REVERSAL LOWER AT T MAY HIGHS REMAINS IN FORCE although it is being challenged at this juncture. Just to note, the S&P forged a new all-time closing high on Friday, and it did so under the guise of a short-term very overbought condition. Quite simply, a correction should develop from near current levels the question is how deep given the extension of other indices. The only caveat we can find for this rally is that this rally has developed under less-than-hoped for volume, and thus must be consdiered with the proverbial grainof-salt. Outside of this, we need to see the tenor of the correction before determining whether this will become a buying opportunity or a deeper correction. RHODES 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. The % of stocks above their 1-dma is back to overbought levels. The recent oversold condition has allowed for this countertrend rally. The % of stocks above their 2-dma stands at 88%...flat from the prior close. The 87% level has marked the previou highs, with the high -dma/1-dma levels putting us on guard. The Intermediate-term Model is now clearly below the 1-dma; this is a bearish sign. 3 M ULY 1, 1, 213

4 MODEL PORTFOLIO POSITIONS I Crude Oil 2x Short SCO Euro 2x Short Last: $ 3.8 TGT: $ 61. Entry: $ 31.9 STP: $ 28. EUO Last: $ 19.8 TGT: $ - Entry: $ 19.9 STP: $ day BLI ( ) 4-day BLI (-.8) 14-day BLI (4.4732) 2-day BLI ( ) 23. Euro 2x Short 23. Major support is being tested, with 6 given the positive model divergence suggests it shall ultimately hold. UltraShort CRUDE OIL ETF 6-DMA 3-DMA DMA 2-DMA DMA Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep DMA 18. The head & shoulders bottom is 18. clear; moving aveage support should 17. hold and turn prices higher. May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep Russell 2 2x Sho TWM Last: $ 1.94 TGT: $ - Entry: $ 16. STP: $ 1. N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - 4-day BLI ( ) 14-day BLI ( ) 3 UltraShort RUSSELL 2 ETF DEMA DMA 2 The distance below the 18- dema is 2 quite large, and thus we ll expect mean reversion higher to develop. 2 y Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep RHODES 4 M ULY 1, 1, 213

5 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) 24.1% $ 46,96 $ 31.9 $ 3.8 $ (2,673).7% $ 28. "T" < $ 61. N/A 2 7/9/13 L 1,411 Euro 2x Short EUO (.18) 14.6% $ 28,82 $ 19.9 $ 19.8 $ (1,17) -4.1% $ 18.2 "T" < 3 7/12/13 L 2,317 Russell 2 2x Short TWM 2.1% $ 37,6 $ 16. $ 1.94 $ (139) -.4% $ 1. "T" < 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 (.82) 8.8% $ 112,113 $ (3,969) "<" Denotes Change 213 RECAP Starting Balance $ 21,13 "T" = TRADE Closed Positions $ (22,42) "C" = CLOSE Open Positions $ (3,969) "E" = EXIT Dividends $ 177 "H" = HOLD PORTFOLIO YTD (Gain/Loss) $ 183,917 $ (26,212) % S&P YTD 17.81% Over/(Under) Performance -3.28% 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 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. Russell 2 2x Short (TWM) bought a 1% long position at $16.. 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 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 . 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. RHODES M ULY 1, 1, 213

6 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. RHODES 6 M ULY 1, 1, 213