THE RHODES REPORT CAPITAL MARKET COMMENTARY FORECAST. 10-Year Note Yield (Daily) A Major Resistance Still

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1 T T Telephone: richard@rhodes-capital.com Web Address: TUESD ULY 3, 3, Year Note Yield (Daily) A Major Resistance Still 1-DEMA 8-day BLI (.83768) The 1 Y TSY FOMC YLD NDX meeting ends tomorrow, and it does so with prices at the 1-dma and the 8-day model at overbought levels. This is consistent with corrections; and we look for a test of the rising 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 both the US and China housing market has been dampened. The Eurozone remains mired in inaction. We feel that risk is being mispriced at current levels given recent weak world economic figures and developing pressure upon corporate revenues/margins/earnings. At some point, the market will view the central banks will be nonsequitur. STRATEGY: The S&P remains above the -wma long-term support level at 134; and the standard 2-dma support level at 131. But perhaps more importantly, the distance above the -wma remains mired at the +23- to +2%% bubble-like rally threshold. We believe a correction of some proportion is forthcoming on the order of -1% to -1% US ECONOMIC FRONT: Today there is very on the economic docket other than the Conference Board s consumer sentiment figure for July. The consensus is for this figure to remain flat at 81.4; although if there is a risk to the figure then it is lower in our opinion given its recent rapid ascent. German sentiment was better this morning, although only very modestly so. That said, today ends the past 2 weeks of very little or even tertiary economic data being released, for a torrent of major releases are on tap for Wednesday, Thursday and Friday. Moreover, when one adds into the mix tomorrow s FOMC meeting statement, and the ECB and BOE statements on Thursday, and the US Employment Situation Report on Friday then one can grasp the potential for CAPITAL MARKET COMMENTARY WORLD MARKETS ARE ALL GREEN ON THIS FIRST DAY OF T FOMC MEETING: There is very little news to speak of than China injecting funds into her money markets via open market operations in terms of a reverse 7-day repo of $2.77 billion; the very first time since February that this has occurred. This was done ostensibly given cash crunch concerns that abounded at the end of June that caused money rates to rise sharply; the Chinese authorities simply didn t want a repeat. This allowed both the Chinese and Japanese stock markets to rally on the order of +.7% and +1.% respectively. European share markets are higher as well in response to this, for the Eurozone data released was much as expected flat. However, in some circles, this is seen as an improvement. OVERNIGHT PRICES Quotes at: 7:23am EST INDEX LAST DAILY CHG Morning Futures S&P up 1, Nasdaq 1 up 3, year Note Yield up 2.6% -1. bps Crude Oil down $ $ (.9) Euro up Yen down Gold down $ 1,3.4 $ (.2) 1 TUESD CHG % ULY 3, YTD YTD % Foreign Indices Japan Nikkei up 13, % 3, % SSE China up 1, % % German DAX up 8, % % Spain Madrid up % % Italy FTSE MIB up, % % US Indices Dow Industrials down 1, % 2,448.68% Nasdaq 1 down 2, % % S&P Large-Cap down 1, % 29.17% S&P 4 Mid-Cap down 1, % % S&P 6 Small-Cap down %.73% 3, 213

2 CAPITAL MARKET COMMENTARY German DAX Index (Daily) No Discernible Extension - 9 The move to all-time highs has not extended as it 8 would be anticipated in a new bull market. In fact, 8 prices are forming a bearish wedge, and not too far above 7the 2-dma. A breakdown of the 778 level would usher in a 7 rather substantial correction day BLI (6.6932) DT. AKTIEN INDEX Breakout; but no extension Previous All-Time Highs 6-DMA 2-DMA Bearish Wedge As for the FOMC bond buying campaign, we believe there is an increasing probability that they shall reduce the speed limit of purchases, for they must slowdown in advance of their desired end date. As the rather sharp tongued Dallas Fed President Fisher - likes to say: we should not go from wild turkey to 9 cold turkey. And given the markets are at rather lofty levels, then it would be easier to do so rather 8 than if the market had entered into a corrective 8 phase as no one wants to throw gasoline on a burning market. We and others believe a move to reduce the campaign from $8 billion to $6 billion 7 7 makes sense in September; but the FOMC isn t likely to listen to us, and we wouldn t be surprised 6 to see the FOMC taper in September but perhaps not as aggressive at a more modest $7 billion. 6 Remember, the FOMC is attempting to manage expectations, and they haven t done a very good job of it lately. S O N D 21 M A M J J A S O N D 211 M A M J J A S O N D 212 M A M J J A S O N D 213 M A M J J A S O N D As for additional positions, we look to add to our short stock market position in TWM; and add the volatility to expand and perhaps expand rather rapidly. Note current StockWatch short positions in GOOG, WFC and the VIX is trading between 12 and 13 which isn t far off its HPQ which are all extremely extended via our daily and low of the past 6-years at 11. Thus, the risk-reward would weekly models. suggest that there is very little downside remaining for the VIX, while the upside is rather ripe for the taking. Be prepared. Richard TRADING STRATEGY: Nothing has changed we Good luck and good trading, are biding our time before acting given the potential for volatile trading activity. We continue to view recent price action as consistent with a distribution period or topping process as our 14-day model has now turned lower from overbought levels. But this doesn t mean stocks are ready to decline in earnest, but in fact sounding a siren that the probability is increasing that a top has been completed, or is close to being completed in the next week or two. Certainly we view the incoming earnings and forward guidance as not being supportive of current stock price levels, although we are seeing some suggesting that this earnings period is the best since 21. This belief is predicated upon materially reduced estimates, and part and parcel of the Texas Two-Step analysts play with the quarterly earnings period. 2 TUESD ULY 3, 3, 213

3 S&P INDEX/ BROAD MKT INDICATORS Major Trendline Resistance S&P INDEX 17 TR breakout is holding DMA 6-DMA DMA DEMA day Model Rolling over - 4-day Model % Above 1-DMA - Bottom at zero - - Neutral/divergence % Above 2-DMA Intermediate-Term Model -DMA 1-DMA As good as it gets really 1-DMA The 1-dma has broken bullishly higher for now ch April May June July August September November 213 February March April May June July August September S&P TECHNICAL COMMENTS NOTHING HAS CHANGED. The short-term very overbought condition remains in place, and thus we believe a topping process is now underway. Whether a higher high forms or not is really inconsequential, for the weakening volume and breadth beneath the S&P suggests a tradable correction is a growing probability from around current levels. The only question is how deep at this point. We ve noted rather consistently in recent weeks that we believe that the first major correction since the November lows will take prices lower on the order of -1% give or take a few percent for a test of the slowly rising 38-dema much like the 211 summer experience. A close below the 72 level would in our mind setup a test of the 38- dema, and then provide the likely next big buying opportunity sometime in late October/November time frame. TECHNICAL INDICATOR REVIEW: The 2-day is peaking at overbought levels, while the 4-day model continues to rise from the zero line. A clear turn lower in the 4-day model would confirm a larger correction is underway. The % of stocks above their 1-dma is below neutral levels at the % level. The % of stocks above their 2-dma stands at 86%...down -1% from the prior close. The 87% level has marked the previous highs, with the high -dma/1-dma levels putting us on guard for a breakdown...confirming a correction. The Intermediate-term Model is above the 1-dma; but peaking it appears. A red flag. 3 TUESD ULY 3, 3, 213

4 MODEL PORTFOLIO POSITIONS I Crude Oil 2x Short SCO Euro 2x Short Last: $ 3.74 TGT: $ 61. Entry: $ 31.9 STP: $. EUO Last: $.2 TGT: $ 23. Entry: $ 19.9 STP: $.2 4-day BLI ( ) 4-day BLI ( ) day BLI ( ) 2-day BLI ( ) The 14-day model has turned higher; 6 hence a mean reversoin excercise is underway. 4 UltraShort CRUDE OIL ETF 6-DMA 3-DMA 8-DMA DMA Euro 2x Short 2-DMA to form DMA. The head & shoulders bottom is. clear; the right shoulder continues Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O Russell 2 2x Sho TWM Last: $ 1.71 TGT: $. Entry: $. STP: $ - N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - 4-day BLI (-8.37) day BLI (-8.94) UltraShort RUSSELL 2 ETF 3 3 -DEMA DMA 2 The distance below the - 2 dema is quite large, and thus we ll expect mean reversion higher to develop. 2 1 ay Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O 1 4 TUESD ULY 3, 3, 213

5 STOCKWATCH POTENTIAL SHORTS I Google GOOG Last: $ $ (3.8) Wells Fargo WFC Last: $ 43.2 $ (.) 4-day BLI ( ) 4-day BLI (7.4819) day BLI (1.981) Google DMA 2-DMA n Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O The key reversal higher is bullish; with the model turn higher now confirming a rally of some proportion DMA Wells Fargo 27-DMA May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O Hewlett Packard HPQ N/A Last: $ 2.67 $ (.32) Last: $ - $ - 4-day BLI (6.8137) day BLI (.194) Hewlett-Packard DMA 2-DMA 17 1 The key 14 reversal at the lows is bullish; we look 13 for this to lead to new 12 highs Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr May Jun Jul Aug Sep O TUESD ULY 3, 3, 213

6 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 (.66).7% $ 46,96 $ 31.9 $ 3.74 $ (1,71) -3.6% $. "C" $ 61. N/A 2 7/9/13 L 1,411 Euro 2x Short EUO (.17) 14.2% $,82 $ 19.9 $.2 $ (1,947) -6.9% $.2 "T" $ 23. N/A 3 7/12/13 L 2,317 Russell 2 2x Short TWM (.47) 19.8% $ 37,6 $. $ 1.71 $ (672) -1.8% $ - "H" $. N/A 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 (1.31) 8.7% $ 112,113 $ (4,32) "<" Denotes Change 213 RECAP Starting Balance $ 21,13 "T" = TRADE Closed Positions $ (,42) "C" = CLOSE Open Positions $ (4,32) "E" = EXIT Dividends $ 177 "H" = HOLD PORTFOLIO YTD (Gain/Loss) $ 3,66 $ (,64) % S&P YTD.17% Over/(Under) Performance -3.81% 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. None. 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. 6 TUESD ULY 3, 3, 213

7 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. 7 TUESD ULY 3, 3, 213