OBVIOUS Major Resistance 160-WMA. Morning Futures

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1 T RHODES T Telephone: richard@rhodes-capital.com Web Address: THURSDAY OBER 212 S&P Index (Weekly) Almost to the Highs Again Rising trendline support continues to define the trend, but note that the % above 16 the 16-wma tends to cap the rally at 122%-23% above it. Right now; prices 14 are 17% above it Price Oscillator (17.97) S&P INDEX CAPITAL MARKET COMMENTARY 16-WMA! ASIAN BOURSES ARE STRONG; EUROPEAN BOURSES ARE MIXED as China s GDP figure came in a bit higher than anyone expected at 7.4%. There were some calling for a fall below the much-vaunted 7.% level that would have given further rise to a Chinese melt-down ; but that didn t happen. Do we have enormous faith in the Chinese numbers? No, not really, but then again they are the only numbers we ll get to see and those are the ones that we must formulate our trading strategy upon. For now, it s bullish and the Shanghai Index is higher by +1.2%. We ll take, for we are long the China ETF (FXI). In Europe, there is a bit of squabbling this morning between Germany s Merkel and France s Hollande before the EU Summit regarding central EU veto over national budgets. Ms. Merkel is in the yes column; Mr. Hollande is in 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 ; and with any war they will go further and farther than anyone believes in printing money to achieve their ends. This will support all asset prices ultimately. STRATEGY: The S&P remains above the 16-wma long-term support level at 12. The much followed 2-dma support level stands at 12, and remains the bulls Maginot Line. We ve noted this is perhaps one of the weirdest rallies we ve ever been witness to, and it causes us a great deal of consternation. But the new Fed policydirectly targets stocks; expect a near S&P all-time high test at 11-to the no. column. This is as it should be; Ms. Merkel is the bastion of EU austerity, where Mr. Hollande is bastion of higher taxes and increased spending. Thus, the debate between fiscal and banking union will dominate today and into the upcoming Summit and for the moment the markets don t like it. However, there are rumors that this weekend shall be the weekend where Spain shall finally go hat in hand to the troika to finally ask for a bailout. This has supported the markets generally in the past several sessions; but about all we can say is that it is about time, and we ll believe it when we see it. If Spanish PM Ranjoy has shown us anything about managing a crisis it is that he does not understand OVERNIGHT PRICES Quotes at: 7:am EST INDEX OBVIOUS Major Resistance Morning Futures LAST DAILY CHG S&P down 1, Nasdaq 1 down 2, year Note Yield up 1.8% -2.8 bps Crude Oil down $ 92.3 $ (.2) Euro down Yen down Gold down $ 1,7.6 $ (9.4) Foreign Indices CHG % YTD YTD % FTSE 1 Index down, % 3 6.% German DAX up 7, % 1, % French CAC down 3, % % Japan Nikkei 22 up 8, % % SSE China Composite up 2, % % Spain Madrid General down % % Italy FTSE MIB down 16, % 1,1 6.64% US Indices Dow Industrials up 13,7..4% 1,3 1.96% Nasdaq 1 up 3, % % S&P Large-Cap up 1, % % S&P 4 Mid-Cap up 1, % % S&P 6 Small-Cap up % % RHODES 1 THURSD 212

2 CAPITAL MARKET COMMENTARY US Dollar Index (Daily) A Head & Shoulders Top the fact of the matter is that a lower USD generally coincides with higher stocks prices. 2-day BLI (-.69) - - The 17-dma breakdown is 87 bearish, but the rally back to it 86 failed as 8 well. If prices break neckline 84support, then a major decline in the US will be 83 underway US DOLLAR INDEX Continuous DMA un Jul Aug Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2 the economics of it; but does understand the politics. We ll see which one serves the Spanish electorate better.! TRADING STRATEGY: Quite simply, we are long and we have been long in varying allocations for the past month. Yesterday, we added Halliburton (HAL) to the model portfolio; and today we ll amend it further to discard Weatherford Int l (WFT) and add the S&P Materials ETF (XLB). Quite simply, while we may like WFT; the fact of the matter is that HAL and XLB are in a far more bullish position than WFT and if there is anything we preach here it is do more of what is working for you; and less of what is not. WFT is not working; and HAL is working; and XLB will work. As for the S&P, it did bounce off its -day moving average in bullish fashion; and we find the Russell 2 has formed a bullish consolidation that appears to be complete and extending. We find all of this bullish, and this is why we are upping our long exposure. Our S&P upside target remains the 11-to13 zone; which is well within the tolerance of an additional +% above the 16-week moving average as noted on the lead chart page 1. Also, note the US dollar is about to break neckline support of a smallish head & shoulders top which would suggest sharply lower USD prices. Perhaps this will occur within the context of a Spanish and/or Italian bailout request but RHODES 2 THURSD 212

3 PORTFOLIO: RHODES AGGRESSIVE DISCRETIONARY No.! Trade Date Long/ Short Share No. Name Ticker Beta Port % Invest Entry Price Current Price Unrealized P/L Percent P/L Stop Loss Point 1 9/1/212 L 6 China ETF FXI.9 1.8% $ 21,3 $.2 $.3 $ 2, % $ 3.8 TRADE < $. N/A 2 9/12/212 L 1,6 Natural Gas ETF UNG.4 1.7% $ 21,9 $ 2.2 $ 22. $ 2,2 1.% $ 21.6 TRADE $ 3. N/A 3 9/19/212 L 3 2+yr Bond 2x Short TBT.8 9.8% $ 21,777 $ 6.74 $ 6. $ (149) -.7% $ - HOLD $ 23. N/A 4 9/21/212 L Freeport McMoran FCX % $ 22,18 $.8 $. $ % $ 4. TRADE $. N/A 1/2/212 L Brazil ETF EWZ % $ 21,68 $ 4.6 $.18 $ 2 1.1% $ 3.2 TRADE < $ 62. N/A 6 1/3/212 L 6 Microsoft MSFT.1 8.6% $ 19,22 $.97 $.9 $ (2) -1.3% $ - HOLD $ 4. N/A 7 1/9/212 L 1,793 Weatherford Int'l WFT % $ 21,618 $ 12.6 $ $ 73 3.% $ - EXIT < $ - N/A 8 1/17/212 L 649 Haliburton HAL % $ 21,83 $.62 $ 3. $ 1,14.1% $.6 TRADE < $ 4. N/A 9 N/A.% $ - $ - $ - $ -.% $ - $ - N/A 1 N/A.% $ - $ - $ - $ -.% $ - $ - N/A 11 N/A.% $ - $ - $ - $ -.% $ - $ - N/A 12 N/A.% $ - $ - $ - $ -.% $ - $ - N/A TOTAL % $ 17,86 $ 6,874 "<" Denotes Change Model Portfolio Inception ($1k): January 1, RECAP Starting Balance $ 2, 2 Performance: +2.% Closed Positions $ (3,286) 26 Performance: +47.7% Open Positions $ 6, Performance: +2.84% Dividends $ 4 28 Performance: -3.7% PORTFOLIO YTD (Gain/Loss) $ 221,489 $ (22,962) -9.% Performance: +7.4% S&P YTD 16.17% 21 Performance: +1.22% Over/(Under) Performance -2.6% 211 Performance: -.8% TARGET Earnings Release 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: 1. Weatherford Int l (WFT) exit long position. 2. S&P Materials ETF (XLB) buy a 1% long position on the opening. Trade Executions: 1. Haliburton (HAL) bought a 1% long position on the opening at $.62. 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 3 THURSD 212

4 S&P INDEX/ BROAD MKT INDICATORS Major support crosses at 1-1; and has held. In fact, a bullish consolidation has formed that targets our 11-to-13 zone. S&P INDEX DMA SMA 2-DMA -DEMA day Model 12 4-day Model - Negative territory Slow decline - % Above 1-DMA - Neutral - % Above 2-DMA -dma/1-dma cross is major support; it -DMA must be regained 1-DMA Intermediate-Term Model A 1-dma violation 1-DMA Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec S&P TECHNICAL COMMENTS # RESISTANCE AT 1 WAS BROKEN ABOVE; AND HAS LD T CORRECTION THUS FAR: Quite simply, in the days leading up to the QE-3 annoucement this major resistance was broken above, and serves as major support. For now, this is bullish, with the developing sideways consolidation indicative of a move to higher highs into overhead trendline resistance.we we this as a high probability given the S&P futures forged a bullish key reversal higher on Monday...a bullish precusor. Therefore, our view remains for this weirdness march towards 11-to-13 to continue or perhaps just a bit higher before the risk-reward is sufficient to warrant exploring a short position. TECHNICAL INDICATOR REVIEW: $ The 2-day is showing a negative divergence; and has turned into negative territory. $ The % of stocks above their 1-dma are back to more neutral levels. $ The % of stocks above their 2-dma stands at 63%...up +3% from the prior day s close. The -dma/1-dma cross is major support, and must be regained rather quickly. $ The Intermediate-term Model has rolled over from less than overbought levels AND, has now broken below the 1-dma. This indicates waning upside momentum; and is concerning. RHODES 4 THURSD 212

5 MODEL PORTFOLIO POSITIONS I China ETF FXI Natural Gas ETF Last: $.3 TGT: $. Entr y: $.2 STP: $ 3.8 UNG Last: $ 22. TGT: $ 3. Entr y: $ 2.2 STP: $ day BLI 4-day BLI day BLI (6.7) 14-day BLI (6.) DMA FTSE China 2 28-DMA US Natural Gas Fund 3-DMA 1-DMA The bullish falling wedge and 28-dma breakouts are very constructive for higher prices.. ep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The 1-dma breakout is leading 1 to an extension higher. Expect further gains in the weeks/months ahead. ep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec yr Bond 2x Sho TBT Last: $ 6. TGT: #REF! Entr y: $ 6.74 STP: #REF! Freeport McMoran FCX Last: $. TGT: $. Entry: $.8 STP: $ 4. 4-day BLI ( ) 4-day BLI (4.6) day BLI (-3.3) - 2-day BLI (1.2771) Lehman 2+yr Bond 2x Inverse DMA 3-DMA 8 17-DMA 7 7 The 17-dma 6 remains strong overhead resistance, but trendline support 6 must now hold the decline and turn prices higher. p Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Freeport-McMoran Cp & Gld DMA DMA Oct Nov Dec 212 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Trendline and 3-dma resistance were violated, with prices consolidating in bullish fashion. Expect a resolution higher RHODES THURSD 212

6 MODEL PORTFOLIO POSITIONS II Brazil ETF EWZ Last: $.18 TGT: $ 62. Entr y: $ 4.6 STP: $ 3.2 Microsoft MSFT Last: $.9 TGT: $ 4. Entry: $.97 STP: $ - 4-day BLI 4-day BLI (-2.177) day BLI (-3.49) 14-day BLI (-6.247) - We are long given the breakout aboe the 11- dma. As long as it holds, then we 7 won t put much emphasis on the potential bearish flag pattern. 6 6 ETF - Brazil -DMA 11-DMA The developing bullish triangle remains in place and still suggests higher prices; but we ve seen more weakness than anticipated. Note the oversold 14-day model Microsoft Corp. 1-DMA 2-DMA Sep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Weatherford Int'l WFT Last: $ TGT: $ - Entry: $ 12.6 STP: $ - TRADE EXIT LONG Haliburton HAL Last: $ 3. TGT: $ 4. Entr y: $.62 STP: $.6 4-day BLI (-1.8) 4-day BLI (.8226) day BLI (-4.187) 2-day BLI (-.24) Weatherford International Ltd. 2 3-DMA multiple occassion, but 19 the rally is very tepid hence 18 8-DMA The lows have held on we ll exit today Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Halliburton Co. 8-DMA 4 2-DMA Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug Sep Oct Nov Dec The breakout above the bottoming 2-dma is bullish, and it has tested it and held it once again RHODES 6 THURSD 212

7 STOCKWATCH POTENTIAL LONGS I FedEx FDX Last: $ 92.9 $ 1.3 CSX Corp CSX Last: $ $ (.26) 4-day BLI (-2.2) 4-day BLI (-4.7) day BLI (1.787) 2-day BLI ( ) DMA The higher low is constructive, but yesterday s move above the 8-dma/ 2-dma cross is bullish given the 2- day model. We are buyers soon. FedEx Corporation 2-DMA Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DMA The higher low is constructive, but a move above the 12-dma/3-dma cross. We think soon given the 2- day model turn higher. CSX Corp. 3-DMA Aug Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug Sep Oct Nov Dec LandStar System LSTR Last: $ $.92 Arkansas Best ABFS Last: $ 8.24 $ (.3) 4-day BLI (-1.71) 4-day BLI (-7.271) day BLI (1.2) - 2-day BLI (.6) - - The decline - appears complete given the trendline breakout and supportive models. We ll look to be a buyer soon DMA Landstar System Inc. 2-DMA Arkansas Best This is a long-shot pick that is good within a group of transport stocks; simply 1 oversold and unloved...with great short covering characteristics. 1-DMA 4-DMA Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec RHODES 7 THURSD 212

8 STOCKWATCH POTENTIAL LONGS II Devon Energy DVN Last: $ $ 1.8 S&P Materials ETF XLB Last: $.87 $. TRADE BUY LONG 4-day BLI (2.2197) 4-day BLI day BLI (.924) 14-day BLI (-2.281) The 1-dma breakout ias bullish; a futher rally will turn the models higher, and bring us in as buyers towards the 4-dma. Devon Energy Corp. 4-DMA 1-DMA Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec The head & shoulders breakout is bullish; we ll look for sharply higher highs. We are buyers today DEMA S&P Materials 27-DMA 27 Sep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Peabody Energy BTU Last: $ 26.8 $ 1. Carbo-Ceramics CRR Last: $ $ day BLI (2.21) 4-day BLI ( ) day BLI (2.8221) 2-day BLI (-.9684) DMA The head 2 & shoulders bottom is clear, with yesterday s nascent break of neckline resistance catching our 2 attention. We may be buyers soon. PEABODY ENERGY DMA 4 3 Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DMA 7 an interesting trade op; further Carbo Ceramics Yesterday s strength of the lows creates extension higher would be positive, with 6 a stop at yesterday s lows. Hmmm. 2-DMA Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec RHODES 8 THURSD 212

9 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 9 THURSD 212