THE RHODES REPORT CAPITAL MARKET COMMENTARY FORECAST. Wilshire 5000 Index (Weekly) A Really Large Trading Range

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1 T RHODES R Telephone: richard@rhodes-capital.com Web Address: WEDNESD 16, 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 16-wma long-term support level at The much followed 2-dma support level stands at 1393, and was regained in weekly key bullish reversal fashion. Collectively, this stands bullish for a test and likely breakout above the recent September highs at 1. We are long of gold and transports at this juncture; but need to consider pullbacks for a potential rally extension Wilshire Index (Weekly) A Really Large Trading Range As the 2 all-time high zone is entered, then we 19 should 18 see some rather material churning i.e. 17 a bout 16of selling. Certainly 1 sentiment has swung from negative to 14 positive rather quickly. Wilshire Outside of this, we ve seen various earnings reports out of Goldman Sachs (GS) and JPMorgan (JPM) that were received differently. GS is moving higher in the pre-market; JPM Is moving lower. Each has benefited tremendously by the Fed s move to QE, for each have had a bond/mortgage refinancing/issuance market handed to them on a silver platter. This is part and parcel of the bank recapitalization program that has been in place for a number of years. At some point the music stops, but that isn t likely today although if the banks start to perform badly, then it would certainly not be a positive WMA envelope offset by +/- 22% Moving on, we are struck by the manner in which the S&P has traded this year outside of the first trading day of the month. Quite simply, the low-high range is to a range CAPITAL MARKET COMMENTARY WORLD MARKETS ARE ALL LOWER THIS MORN- ING as a plethora of concerns are starting to overtake the markets. First, in Europe, there are concerns regarding the high level of the Euro and its impact upon growth. This view as expressed in comments yesterday by Mr. Juncker of the Eurogroup the Eurozone s to financial committee. However, this morning, those comments are being downplayed by ECB policymaker Nowotny who said there are no concerns. We find this all rather interesting; but the fact of the matter is that Germany s poor 4Q-GDP figures the worst in 3-years suggest that recession in Europe isn t going to be easy to exit from regardless of whether or not Spanish or Italian bond yields have moved lower in the past 7-months. RHODES OVERNIGHT PRICES Quotes at: 6:16am EST INDEX LAST DAILY CHG Morning Futures S&P down 1, Nasdaq 1 up 2, year Note Yield up 1.83% -1.1 bps Crude Oil up $ 93.7 $.29 Euro up Yen up Gold down $ 1,678.9 $ (.) 1 WEDNESD CHG % YTD YTD % Foreign Indices. Japan Nikkei 22 down 1, % % SSE China down 2, % % German DAX down 7, %.7% Spain Madrid down %.33% Italy FTSE MIB down 17, % 98 6.% US Indices Dow Industrials up 13, % % Nasdaq 1 down 3, % % S&P Large-Cap up 1, % 3.24% S&P 4 Mid-Cap up 1,6..2% 4.33% S&P 6 Small-Cap up 4 2..% % 16, 212

2 CAPITAL MARKET COMMENTARY Dow Utilities Index (Monthly) 2-MMA is the Trigger We ve spoken recently about the 6 Ultiities and their top calling ability. Perhaps the best metric is a clear beakdown below the 2- MMA, of which prices are trying to do so 4 right now. DJ UTIL AVERAGE 2-MMA of 1.%. This is rather tight to be sure; and of further note the net change on any given day in this range is -.32% to +.71%...again, no +/-1.% closes during this period. We aren t sure what to make of this, but we find it fascinating nonetheless with the law of averages suggesting at +/- 1.% moves will come sooner rather than later, with volatility expanding. Remember, volatility is a 7-year low, and while it can go lower the risk-reward dynamic is such that bettin men would expect volatility to expand ivory towers many like most if not all the other committee members who possess PhD s. TRADING STRATEGY: We ve focused upon the S&P and the fact it is at a critical juncture into overhead trendline resistance crossing at 1-to-1 zone; and believe that the S&P continues to fact its moment of truth in the week ahead. However, we believe that the NASDAQ 1 faced a great moment of truth Monday and Tuesday, in which AAPL, GOOG and IBM faltered as the broader market made efforts to trade higher. In effect, the large-cap leaders of the tech rally are faltering, and when the generals are in retreat, then the troops tend to meander and then retreat as well. We could very well see AAPL plunge in the days ahead, for it has broken down from a bearish head & shoulders top; which means rallies are to be sold and our downside target in the mid- $3 s. Hence, we are long the NASDAQ 1 2x Short ETF, which moves higher as the NASDAQ 1 moves lower, for it is developing a bullish head & shoulders bottom. And, are long of gold prices, is increasingly becoming more and more bullish given its basing pattern. Our upside target on DGP is $7. Outside of this, a move outside the narrow S&P range will help us determine where to deploy additional capital. Good luck and good trading, ON T US ECONOMIC FRONT, there are various reports out already this morning regarding CPI, and CPI was rather quiescent standing at unchanged in December. The CPI minus food & energy, actually rose +.1%. The market yawned; so too shall we. Later today at 2pm ET, the Fed will release their Beige Book of economic conditions around the 12 Fed districts. This is likely to be the only market moving release today, although Minneapolis Fed President Kocherlakota will speak on the economy at 1am ET; likely employing a recent speech given earlier this week. Then Dallas Fed President Fisher will speak on Too Big to Fail at 7pm ET. We always and everywhere like to hear from Mr. Fisher, for he is on the only MBA s on the committee and he has real world experience rather sitting in the RHODES 2 WEDNESD 16, 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 % $ 61,291 $ 2.3 $ 2.32 $ 342.6% $ - "H" $ 7. N/A 2 1/1/13 L 1,7 NASDAQ 1 2x Short QID (.38) 2.% $ 42,186 $ $ 28.2 $ 3.1% $ 26.1 "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 (.26).2% $ 13,7 $ 372 "<" Denotes Change 213 RECAP Starting Balance $ 21,13 "T" = TRADE Closed Positions $ "C" = CLOSE Open Positions $ 372 "E" = EXIT Dividends $ - "H" = HOLD PORTFOLIO YTD (Gain/Loss) $ 21,99 $ 83.39% S&P YTD 3.24% Over/(Under) Performance -2.84% 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. Arkansas Best (ABFS) exited long position on the opening at $ Devon Energy (DVN) exited long position on the opening at $ Schlumberger (SLB) exited long position on the opening at $ NASDAQ 1 2x Short ETF (QID) bought a 2% long position on the opening 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 WEDNESD 16, 212

4 S&P INDEX/ BROAD MKT INDICATORS 1 S&P INDEX Sell zone?? DMA DMA DMA 38-DEMA day Model 12 4-day Model - % Above 1-DMA - Rising again Bullish % Above 2-DMA Intermediate-Term Model 1-DMA 1-DMA 212 February March April May June July August September October November December 213 February March -DMA A divergence with price? -dma/1-dma cross is major support A 1-dma breakdown would be bearish S&P TECHNICAL COMMENTS MAJOR SUPPORT ULTIMATELY LD: The S&P remains above major 38-dema/2-dma support, with the 28-dma and the 6-dma ultimately regained in key reversal fashion. Moreover, the reversal higher has extended and it now at overhead trendline resistance. This current important test of resistance is ongoiong, and it is notable that previous attempts to breakout above trendline resistance failed and resulted in corrections of some consequence. The probability is increasing that this is the case. Moving forward, the key reversal higher intra-day low print at 1398 is the clear bearish line-in-the-sand. A breakdown below this level will confirm in many techncial minds that a major correction is underway; and one that could be far deeper than anyone anticpates at this point. Our sell zone remains in place overhead. RHODES TECHNICAL INDICATOR REVIEW: The 4-day model remains higher; but the 2-day model is rising to exceptionally overbought levels. The 4-day model is about to enter overbought levels; a turn lower with prices in the sell zone would confirm a larger decline ahead. The % of stocks above their 1-dma are correcting, but prices have not. A divergence?? The % of stocks above their 2-dma stands at 79%...up +1% from the prior close. The -dma/1-dma cross acted as support. The Intermediate-term Model is nearing rather overbought levels a bearish signal will be elected with a 1-dma breakdown. 4 WEDNESD 16, 212

5 MODEL PORTFOLIO POSITIONS I Gold ETF 2x Long DGP NASDAQ 1 2x Sho Last: $ 2.32 TGT: $ 7. Entry: $ 2.3 STP: $ - QID Last: $ 28.2 TGT: $. Entry: $ STP: $ day BLI (-.112) 4-day BLI (-.7976) day BLI ( ) 2-day BLI ( ) Gold 2x Long NASDAQ 1 2x Short DMA DMA DMA The 14-dma/2-dma zone is under 212 FebruaryMarch April May June July August September November 213 FebruaryMarch attack again; but expect it to hold. A trendline breakout would put in play the bullish head & shoulders neckline overhead. ec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - N/A Last: $ - TGT: $ - Entr y: $ - STP: $ - RHODES WEDNESD 16, 212

6 STOCKWATCH POTENTIAL LONGS I Transocean RIG Last: $ 3.89 $ (.4) Caterpillar CAT Last: $ 9.67 $ day BLI (2.319) 4-day BLI (6.) day BLI (7.64) day BLI (6.9872) DMA Transocean Inc. 28-DMA 38 The 28-dma 37 was violated on the deal RIG payed for all damages related to the BP rig. Hence, the sharp rally; but it reversed sharply lower yesterday. Patience for a correction. Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr Caterpillar DMA 9 4-DMA 9 The bullish double bottom breakout 8 hasn t extended; if it does, then it suggests 8 higher prices to $11. But for now; there is no trade. 212 February April May June July August September November 213 February Parker-Hannifin PH Last: $ $.32 US Steel X Last: $ $.36 4-day BLI (6.6827) 4-day BLI (6.3) day BLI (7.17) 2-day BLI (.419) Parker-Hannifin DMA DMA The bullish consolidation 72 breakout has our attention 71 7 given the 8-dma/2-dma 69 cross held, and key reversal Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar higher is bullish. Buy weakness DMA 22-DMA 7-DMA The 4-dma resistance 2 level is 19proving its merit; with the models both at 18 overbought 17 levels. Correction ahead. United States Steel Corp. 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar Apr RHODES 6 WEDNESD 16, 212

7 STOCKWATCH POTENTIAL LONGS II Baker Hughes BHI Last: $ $.18 Occidential Petro OXY Last: $ 82. $ (.18) 2-day BLI (3.121) 4-day BLI (.8871) day BLI (7.736) 4-day BLI ( ) Occidental Petroleum 11 6 Baker Hughes DMA DMA DMA The key reversal higher several 38 weeks 37prior came on -times the 36 normal volume; we are interested buyers on corrections. r 212 FebruaryMarch April May June July August September November 213 FebruaryMarch The distance below the 4- dma is material; but the rally thus far is overextended and in need of a correction. mber 212 FebruaryMarch April May June July August September November 213 February 7 Apache Corp APA Last: $ 8.4 $.7 National Oilwe ll NOV Last: $ 7.24 $ (.1) 4-day BLI (-1.383) 4-day BLI (-3.86) day BLI ( ) 2-day BLI (4.2923) Apache Corp National Oilwell Varco DMA DMA DMA DMA 7 8 The decline below the 2- dma is rather material; with 7 the key reversal higher from a higher low considered bullish. Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar The models are bullish; a trendline 6 breakout would suggest a larger rally phase. ec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar 6 6 RHODES 7 WEDNESD 16, 212

8 STOCKWATCH POTENTIAL SHORTS I Google GOOG Last: $ $ 1.68 Apple AAPL Last: $.92 $ (1.83) 4-day BLI ( ) 4-day BLI (-.393) day BLI (4.33) day BLI ( ) The rising 2-dma and trendline support levels are our focus. A clear breakdown would mean we become sellers Google 2-DMA 2-DMA 2 FebruaryMarch April May June July August September November 213 FebruaryMarch The head & shoulders top is clear and confirmed; this suggests 3 sharply lower prices forthcoming. Apple Computer 2-DMA 1-DMA 2 FebruaryMarch April May June July August September November 213 FebruaryMarch F Networks FFIV Last: $ 97. $.2 IBM IBM Last: $ 192. $ (.12) 4-day BLI ( ) 4-day BLI (.2833) day BLI (2.314) - 2-day BLI ( ) F NETWORKS DMA International Bus. Machines DMA The 2-dma is trending lower, 9with prices above the 7-dma. If the 7-dma and 8 trendline support are given, then short 8 positions will be warranted. v Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar RHODES DMA 2-DMA The bearish 17 consolidation back into overhead resistance at the 1- dma/2-dma cross is on the verge of failing. 2 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar 8 WEDNESD , 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 WEDNESD 16, 212