Forecast. Morning Futures

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1 T RHODES R Telephone: richard@rhodes-capital.com Web Address: T 212 NASDAQ 1 Index (Weekly) The Canary in the Coal Mine?? This chart is worth showing again as rising trendline support is quite valid given the numerous touches. And barring a reversal higher today, then it shall be given TODAY, and the beginnings of a bear market will have begun. Relative Strength Index (3.26) NASDAQ 1 INDEX 12-WEMA CAPITAL MARKET COMMENTARY! WORLD MARKETS ARE UNDER PRESSURE THIS MORNING as most if not all the major stock bourses are lower than -1.% or more. If there is a reason for this weakness outside of the normal mish-mash of noise we hear every day it is that Moody s sharpened its pencils once again and downgraded of Spain s regions ostensibly because they are over indebted including Catalonia. This has pushed Spanish and Italian bond yields higher in a very modest manner; and certainly not of the degree to push the S&P futures down by -16 points. We sense this decline is something more than related to the Spanish downgrade. On Friday, we sensed the market psychology had changed sufficiently to warrant exiting all of our positions first thing Monday morning. The market didn t feel right to us; ral- 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; but not at present. STRATEGY: The S&P remains above the 16-wma long-term support level at The much followed 2-dma support level stands at 137, 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 has caused us a great deal of consternation. Now, weakness is prevelant; too early in our opinion, but sufficiently so our downside target is lies were prone to exceptionally poor advance/ decline figures, and even the all the major indices could not rise in tandem. This went on over the course of a month after the QE-3 announcement; and it speaks to a loss of confidence in the authorities to rein in the business cycle and push assets higher. Earnings and revenues are once again beginning to be understood that this is what companies are valued upon; and it is becoming understood in the corporate earnings world that Europe and Asia slowdowns do indeed cause earnings and revenue recessions. We thought the QE-3 open-ended commitment would have allowed the punch bowl to be drunk from a while longer. We were wrong; and we exited our positions as fast as humanly possible. For now, this OVERNIGHT PRICES Quotes at: 7:am EST INDEX Morning Futures LAST DAILY CHG S&P down 1, Nasdaq 1 down 2, year Note Yield up 1.77% -.1 bps Crude Oil down $ 87.6 $ (1.) Euro down Yen up Gold down $ 1,712. $ (13.8) Foreign Indices CHG % YTD YTD % FTSE 1 Index down, % % German DAX down 7, % 1, % French CAC down 3, % % Japan Nikkei 22 up 9, % % SSE China Composite down 2, % % Spain Madrid General down % % Italy FTSE MIB down 1, % % US Indices Dow Industrials up 13, % 1, % Nasdaq 1 up 3, % % S&P Large-Cap up 1, % % S&P 4 Mid-Cap down % % S&P 6 Small-Cap down % % RHODES 1 TUESD 212

2 CAPITAL MARKET COMMENTARY Crude Oil Futures (Daily) Head & Shoulders Top Pattern The 3-dma 9 proved its merit as resistance 9 once again, with the 7-dma violated yes- 8 terday. Now, if the neckline is given, then 8 a test of the lows at $76 is very likely tin the weeks ahead. 3-DMA 4-day BLI (-2.289) 14-day BLI (-.748) LIGHT CRUDE Continuous 7-DMA March April May June July August September November down below a clear head & shoulders neckline, which would target the lows. In the morning trade thus far, crude oil is down -$1.42, which means neckline support is violated and our downside target at $77 is in play. We ll short Crude Oil via the 2x Short Leverage ETF (SCO). Lastly, technical condition of the gold shares has our interest. Quite simply, they have run sharply higher off their July lows and broken out in bullish double bottom fashion; and over the past 2-months they have consolidated in a sideways and bullish fashion meaning they shall resolve themselves higher as some point in time. We believe that time is close given the overt weakness being seen in stocks and commodities today, and we would not be surprised to see gold shares and gold itself close higher on the trading day. Hence, we ll be buyers of NEM, GG and GDXJ on the opening. seems to have to been the appropriate response.! TRADING STRATEGY: We believe the winds have changed for stocks, with the Russell 2 and NASDAQ 1 having forged their highs, while the S&P has an outside chance of moving to a higher high. The topping process is undertaken in a myriad of ways, and they almost always surprise, for tops are only seen in retrospect. That said, we believe the commodity markets have peaked, and they are headed lower as well outside of perhaps the grain market in which weather plays a much greater role in price discovery than earnings or revenues. To this end, we want to be short the broader market and commodities, but we also want to be long gold shares. For the broader market, we nearly always trade the Russell 2 given it is the higher beta indice upon which to trade; if one is bearish then one would expect the Russell 2 to fall further than the S&P. However, the potential exists for the NASDAQ 1 to soon breakdown against the Russell, at which time we would want to be short the NASDAQ 1. Now, we want to be short the Russell 2 via the 2x Short Leverage ETF (TWM), and we ll do so today on small intraday rallies. Too, we ve included a chart of the Crude Oil Futures chart on page 2, and it is clear that it is on the verge of breaking RHODES 2 TUESD 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 N/A.% $ - $ - $ - $ -.% $ - 2 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.% $ - $ - $ - $ -.% $ - 11 N/A.% $ - $ - $ - $ -.% $ - 12 N/A.% $ - $ - $ - $ -.% $ - TOTAL -.% $ - $ - "<" Denotes Change Model Portfolio Inception ($1k): January 1, RECAP Starting Balance $ 244,41 2 Performance: +2.34% Closed Positions $ (26,466) 26 Performance: +47.7% Open Positions $ - 27 Performance: +2.84% Dividends $ Performance: -3.7% PORTFOLIO YTD (Gain/Loss) $ 218,82 $ (2,869) -1.8% 29 Performance: +7.4% S&P YTD 14.1% 21 Performance: +1.22% Over/(Under) Performance -24.9% 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. Russell 2 2x Short Lev (TWM) buy a 2% long position. 2. Crude Oil 2x Short Lev (SCO) buy a 1% long position on the opening. 3. Newmont Mining (NEM) buy a 1% long position on the opening. 4. Gold Corp (GG) buy a 1% long position on the opening.. Gold Junior ETF (GDXJ) buy a 1% long position on the opening. Trade Executions: 1. China ETF (FXI) exited long position at $ Natural Gas (UNG) exited long position at $ Lehman 2+yr Bond Short (TBT) exited long position at $ Microsoft (MSFT) exited long position at $ Freeport-McMoran (FCX) exited long position at $ Halliburton (HAL) exited long position at $ S&P Materials ETF (XLB) exited long position at $ Carbo-Ceramics (CRR) exited long position at $ 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 TUESD 212

4 S&P INDEX/ BROAD MKT INDICATORS Major support crosses at ; and has held yet again; but we fear it shall be given on this go round and trendline support tested. S&P INDEX DMA DMA 2-DMA 38-DEMA day Model 12 4-day Model - % Above 1-DMA - Negative territory Slow decline - - Neutral % Above 2-DMA -dma/1-dma cross -DMA is major support; it was 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 142 WAS BROKEN ABOVE; AND HAS LD T CORRECTION THUS FAR: However, for the first time in months we ve become rather worried given the manner in which prices have traded and the underlying deterioration of our indicators. This doesn t preclude the S&P from moving towards our oft-state target of 11-to-13 on an exogenous event or annoucement; but the fact of the matter is that earnings are starting to matter more than QE-3. Either 141-to-142 support holds, or a decline towards the 2-dma at 137 is underway. 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 8%...down -1% from the prior day s close. The -dma/1-dma cross is major support, and it is showing signs of failing again. $ The Intermediate-term Model has rolled over from less than overbought levels AND, has accelerated below the 1-dma. This indicates a loss of upside momentum; and is larger concern. RHODES 4 TUESD 212

5 STOCKWATCH POTENTIAL LONGS I Newmont Mining NEM Last: $.49 $ - TRADE BUY LONG Gold Corp GG Last: $ $ - TRADE BUY LONG 4-day BLI (6.1722) 4-day BLI (.74161) day BLI (.98) 2-day BLI (-2.284) Newmont Mining Corp. (Hldg. Co.) 7 GOLDCORP ORD 6 6 The double bottom breakout is bullish for a target of $6; the current 4 consolidation around the 4-dma is normal and bullish. Higher highs are forthcoming. Buy. 9-DMA 4-DMA ov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DMA The double bottom breakout is bullish for a target of $; the current 3 consolidation around the 4-dma is normal and bullish. Higher highs are forthcoming. Buy. -DMA Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Junior Gold ETF GDXJ Last: $ 24.1 $ - N/A Last: $ - $ - 4-day BLI (.86298) day BLI (-.7687) MARKET VECTOR JUNIOR GOLD MINERS ETF DMA 3 12-DMA 2 2 The double bottom breakout is bullish 2 for a target of $29; the current consolidation around the 4-dma is normal and bullish. Higher highs are Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec forthcoming. Buy. 2 RHODES TUESD 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 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 TUESD 212