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

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1 T R Telephone: richard@rhodes-capital.com Web Address: TUESD 19, 212 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 remains above the -wma long-term support level at 127; and the standard 2-dma support level at 4. Collectively, with the breakout above the Sept-212 highs at 7 has run into major overhead resistance, and shall likely find rough sledding at this level given the relative under performance of the NASDAQ 1. We are long of gold; and we are short the Russell Year Note Yield (Daily) Major Resistance 6-DMA 1-DEMA 4-day BLI (6.4641) 1 Y TSY YLD NDX Trendline resistance has turned prices lower in a very modest manner, with the 4-day model turning lower form overbought levels. This suggests a decline is an increasing probability, and one must question whether a move towards safety is what will cause this decline. Jul Aug Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Mar Apr Ma On the US ECONOMIC FRONT, there is only one report today of mentioning the NAHB Housing Index for February, which is a homebuilder confidence index. Consensus is for a rise to 48 from 47, of which 47 is the very same number extant during January and December. Thus, it has stagnated just a bit, and we wouldn t be surprised to see it do so once again. Also of note, it is being reported that President Obama is about to turn up the heat on Republicans over sequestration that will kick-in on March 1 st which is next Friday. If we had to venture a viewpoint, we would believe that the Republicans are about to allow the cuts to take place, for they will not be seen caving in to their base a second time. And given the market s extended nature, then cer- CAPITAL MARKET COMMENTARY WORLD MARKETS ARE MIXED AMONGT RE- GIONAL LINES: Asian bourses closed lower on their trading sessions, with China dropping -1.6% and Japan faltering modestly by -.3%. In Europe however, the bourses are sharply higher on news that the German ZEW investor confidence index rose to 48 from the consensus was for a rise to 3. This pushed Germany s DAX higher by +1.1% and France s CAC higher by +1.3%, which is actually greater than the rises seen in Spain and Italy of roughly +1.%. What was lost this morning was the France s Economic Minister noting that the French economy was going to grow markedly slower than its target and the deficit target was going to be missed as well. Outside of this, we are seeing the US dollar rising once again, with the precious metals rising and energy mixed. OVERNIGHT PRICES Quotes at: 7:3am EST INDEX LAST DAILY CHG Morning Futures S&P up 1, Nasdaq 1 up 2, year Note Yield up 2.1% -.2 bps Crude Oil up $ $ - Euro down Yen down Gold down $ 1,69.7 $ (.1) 1 TUESD CHG % YTD YTD % Foreign Indices.. Japan Nikkei down 11, % % SSE China down 2, % 1.1% German DAX up 7, % 1 1.2% Spain Madrid up % 8.97% Italy FTSE MIB up, % % US Indices Dow Industrials up 13, % % Nasdaq 1 down 2, % 3.9% S&P Large-Cap down 1, % % S&P 4 Mid-Cap down 1, % % S&P 6 Small-Cap down % % 19, 212

2 CAPITAL MARKET COMMENTARY Energy Index vs. Crude Oil (Weekly) 3-WMA Fulcrum Point We are monitoring en ergy 37carefully, for given crude oil s high level energy 33 stocks simply haven t 31 risen commensurately. 29 The potential 3 for a 27larger bottom exists 2on a breakout above 23 the 3-wma Relative Strength Index (3.878) XOI vs. Crude Oil RATIO 3-WMA 4-WMA tainly this could cause a very short and sharp correction as we saw during late-december. TRADING STRATEGY: We will continue to reiterate that the short-term S&P and Russell technical conditions are frothy extended 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-23 bull market trendline that was violated in is being kissed with this current rally. Quite commonly, prices are unable to overcome this important resistance level and begin to decline. In any case, the probabilities favor a correction at the very least upon which we can reassess. Good luck and good trading, 2 TUESD 19, 212

3 MODEL PORTFOLIO: RHODES AGGRESSIVE DISCRETIONARY 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 11/21/12 L 1,178 Gold ETF 2x Long DGP.12.1% $ 61,291 $ 2.3 $ $ (4,99) -8.1% $ - "H" $ 7. N/A 2 2/11/13 L 3,764 Russell 2 2x Short TWM (.76) 39.8% $ 83,71 $.7 $ $ (3,312) -4.% $ 2. "T" < $. N/A 3 N/A.% $ - $ - $ - $ -.% $ - 4 N/A.% $ - $ - $ - $ -.% $ - N/A.% $ - $ - $ - $ -.% $ - 6 N/A.% $ - $ - $ - $ -.% $ - 7 N/A.% $ - $ - $ - $ -.% $ - 8 N/A.% $ - $ - $ - $ -.% $ - 9 N/A.% $ - $ - $ - $ -.% $ - 1 N/A.% $ - $ - $ - $ -.% $ - TOTAL (.64) 67.9% $ 4,363 $ (8,272) "<" Denotes Change 213 RECAP Starting Balance $ 21,13 "T" = TRADE Closed Positions $ (1,427) "C" = CLOSE Open Positions $ (8,272) "E" = EXIT Dividends $ - "H" = HOLD PORTFOLIO YTD (Gain/Loss) $ 2,431 $ (9,699) -4.62% S&P YTD 6.6% Over/(Under) Performance -11.% 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 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. 3 TUESD 19, 212

4 S&P INDEX/ BROAD MKT INDICATORS S&P INDEX 1 Sell zone 1 -DMA 6-DMA 13 2-DMA DEMA day Model 12 4-day Model - Very overbought Overbought - % Above 1-DMA - - A divergence with price % Above 2-DMA At past selling levels Intermediate-Term 6 Model 6 -DMA 1-DMA 4 4 A 1-dma breakdown would be bearish 1-DMA March April May June July August September October November December 213 February March April S&P TECHNICAL COMMENTS PRICES REMAIN IN T SELL ZONE AND FINALLY KISSED OVERAD TRENDLINE RESIS- TANCE: And while the S&P remains above all the major moving averages: 38-dema/2-dma/6-dma/-dma; short-term frothiness in place as the A/D line and volume have been rather flattish on this recent move to kiss. This is now as good as it gets for the bulls, and if resistance is violated then we must consider an acceleration higher towards the all-time highs at 17. Thus, the risk-reward clearly favors selling stocks rather than buying them for the next several months. Ultimately, we won t be surprised to see a test of 17 but after a correction only, where we are able to become more confident buyers rather than buy into euphoria. The downside last stand, bear-line in the sand is a 1398 violation. TECHNICAL INDICATOR REVIEW: The 2-day and 4-day model stand at clear overbought levels and are rolling over together in tandem. Bearish. The % of stocks above their 1-dma are significantly below their highs; indicating a selective market divergence; and is quite bearish. The % of stocks above their 2-dma stands at 86%...flat from the prior close. This level in the past has marked the good as it gets level. The Intermediate-term Model is at rather overbought levels a clear bearish signal will be elected with a 1-dma breakdown. 4 TUESD 19, 212

5 MODEL PORTFOLIO POSITIONS I Gold ETF 2x Long DGP Russell 2 2x Sho Last: $ TGT: $ 7. Entr y: $ 2.3 STP: $ - TWM Last: $ TGT: $. Entr y: $.7 STP: $ 2. 4-day BLI (-4.172) 4-day BLI ( ) day BLI ( ) -day BLI (-8.) Gold 2x Long UltraShort RUSSELL 2 ETF DMA DMA DEMA The 8-dma has been given; and 43 this concerns us obviously. We ll need to see it regained VERY SOON or we ll consider exiting. 8-DMA Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr The decline 2 is rather pronouced, but the models are at levels consistent with a rubber-band snap-back mean reversion move back towards the 7- dma in the least. 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr 3 2 N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - TUESD 19, 212

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 - 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. 6 TUESD 19, 212