THE RHODES REPORT CAPITAL MARKET COMMENTARY MONDAY DECEMBER 10, 2012 FORECAST. Gold Futures (Daily) A Bullish Consolidation

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1 T RHODES T Telephone: richard@rhodes-capital.com Web Address: MECEMBER 1, 212 Gold Futures (Daily) A Bullish Consolidation Friday put in a bullish key reversal higher, which comes from just above the 14- dma. This should be the point where prices move to break $18, 2 which then targets 2 the $26 level day BLI (-1.363) 2-day BLI (.33129) 1 OZ GOLD Continuous 14-DMA 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. STRATEGY: The S&P remains above the 16-wma long-term support level at 123. The much followed 2-dma support level stands at 1386, and was regained in bullish fashion after the previous Friday s bullish key reversal higher. Collectively, this is bullish for a test and likely brekaout above the recent September highs at 147. We want to be long of gold, energy and materials at this juncture, and we adjusting our positions this morning to reflect this the Italian situation, we can surmise that Spanish PM Rajoy isn t very happy, for he was enjoying lower note yields due to the prospect of the ECB using their bazooka ; this may no longer by the case as the market is moving away from the risk of both Spanish and Italian debt given that yields have dropped far too low on the ECB threat and high liquidity. Every bond fund owns this debt; and today they will reassess their risk and their allocation models. They should; and they will for there is risk in them thar notes DMA Jun Jul Aug Sep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb CAPITAL MARKET COMMENTARY T WORLD STOCK MARKET STAGE IS MIXED as there is positive news coming out of the Asian region as China was higher once again by +1.1%, while there is negative news emanating from the Eurozone in regards to Italy s PM Monti likely to stand down after he lost support of the party headed by that never die billionaire politician Berlusconi. This is perhaps the most important overnight news, for we are seeing both Spanish and Italian 2-yr and 1-yr note yields rise rather sharply. To wit, Spanish 2- yr yields are higher by 13 bps to 3.1%, 1-yr note yields are higher by 1 bps to.6%; Italian 2-yr yields are higher by 37 bps to 2.3%, while 1-yr yields are higher by 3 bps to 4.83%. The question we and other have at this point is whether it shall be Italy who asks for a bailout before Spain! Now with As for the US the news is simply in a holding pattern given the fiscal cliff deliberations. President Obama and House Speaker Boehner met at the White House yesterday; OVERNIGHT PRICES Quotes at: 7:3am EST INDEX LAST DAILY CHG CHG % YTD YTD % Morning Futures S&P down 1, Nasdaq 1 down 2, year Note Yield up 1.6% -2.2 bps Crude Oil up $ $.69 Euro down Yen up Gold up $ 1,714. $ 8. Foreign Indices FTSE 1 Index down, % % German DAX down 7, % 1, % French CAC down 3, % % Japan Nikkei 22 up 9, % 1, % SSE China Composite up 2, % % Spain Madrid General down % % Italy FTSE MIB down 1, % 63.41% US Indices Dow Industrials up 13, % % Nasdaq 1 down 2, % % S&P Large-Cap up 1, % % S&P 4 Mid-Cap up 1, % % S&P 6 Small-Cap up % % RCM T RHODES 1 M 1, 1, 212

2 CAPITAL MARKET COMMENTARY US Monetary Base (Monthly) That s a Bullish Consolidation The Fed s policies have not resulted in an increase in the monetary base, or the soup of economic activity. However, with Wednesday s decision to buy Treasuries expect it to start movign higher once again...with gold. and we ll call this progress and we ll say that any agreement will be negotiated between both these gentlemen and no one else. This increases the prospects for a deal; and it will be positive for the world capital markets. Also of note, tomorrow begins the two-day FOMC meeting. This is starting to get more and more press as there will be a major change in policy outside of the other policy moves this year the FOMC will vote to start buying Treasury bonds outright as Operation Twist winds down pun intended. We would posit that the Fed will use the 7-yr to 1-yr time frame to do so, for the 7-yr is never a well-liked issue given it never matches pension fund time frames, and the 1-yr is the most liquid and where mortgage rates are priced off of. shall enter the markets. Liquidity shall win out in the shortterm to be sure, and we see the S&P just below the 142 level that is a key level to overcome for more money to flow into stocks. We do believe it shall occur this week, it may very well be today in anticipation of the FOMC decision; it may be Wednesday, or any other day this week but a breakout is anticipated given the technical underpinnings are positive. However, down the road the Eurozone will matter once again, and for more than a day. Our upside S&P target is on the order of 11-to-17, for this is where natural long-term resistance stands, and where sellers As for the model portfolio, we added CSX on Friday and we ll allow price action to determine whether we add additional positions. We want to be buyers of China, but preferably on pullbacks, but thus far none have occurred. We like FDX and PH, and could very well add these as well, but perhaps not in our usual 1% increments, but perhaps %. Good luck and good trading, To this end, we see commodity prices moving sharply higher this morning; gold prices are higher by +$12 to $1718/oz; crude oil is higher by +$.72 to $86.64/barrel; copper is higher by +$4.7 to $3.71/lb. One gets the point we believe, for any move by the FOMC to expand its money printing operation will cause traders to begin buying commodities and by logical extension commodity stocks. TRADING STRATEGY: The next several days should be interesting to be sure as the Eurozone issues come back to the forefront and meet the FOMC money printers. RCM T RHODES 2 M 1, 1, 212

3 PORTFOLIO: RHODES AGGRESSIVE DISCRETIONARY No. Trade Date Long/S hort Share No. Name Ticker Beta Port % Invest Entry Price Current Price Unrealized P/L Percent P/L Stop Loss Point 1 11/21/212 L 1,178 Gold ETF 2x Long DGP.4 3.% $ 6,919 $.96 $ 4.11 $ (2,182) -3.3% $ 3. HOLD < 2 11/26/212 L 293 Occidential Petro OXY.1 1.4% $ 22,88 $ 7.4 $ 7.37 $ (23) -.1% $ 72.4 HOLD < 3 11/26/212 L 289 Apache Corp APA.1 1.4% $ 22,88 $ $ 76.1 $ 26.1% $ 74.4 HOLD < 4 11/26/212 L 82 Microsoft MSFT.9 1.% $ 22,88 $ 27.4 $ $ (87) -3.9% $ 26.3 HOLD < 12/7/212 L 1,49 CSX Corp CSX % $ 21,198 $ 2.2 $ $ (34) -1.4% $ 19.4 HOLD < 6 N/A.% $ - $ - $ - $ -.% $ - 7 N/A.% $ - $ - $ - $ -.% $ - 8 N/A.% $ - $ - $ - $ -.% $ - 9 N/A.% $ - $ - $ - $ -.% $ - 1 N/A.% $ - $ - $ - $ -.% $ - 11 N/A.% $ - $ - $ - $ -.% $ - 12 N/A.% $ - $ - $ - $ -.% $ - TOTAL.9 7.7% $ 13,381 $ (3,34) Model Portfolio Inception ($1k): January 1, RECAP Starting Balance $ 244,41 2 Performance: +2.34% Closed Positions $ (29,616) 26 Performance: +47.7% Open Positions $ (3,34) 27 Performance: +2.84% Dividends $ Performance: -3.7% PORTFOLIO YTD (Gain/Loss) $ 212,238 $ (32,213) % 29 Performance: +7.4% S&P YTD 12.76% 21 Performance: +1.22% Over/(Under) Performance -2.94% 211 Performance: -.8% "<" Denotes Change 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. CSX Corp (CSX) bought a 1% long position on the opening at $2.2. 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. RCM T RHODES 3 M 1, 1, 212

4 S&P INDEX/ BROAD MKT INDICATORS 1 S&P INDEX Sell zone?? DMA DMA DMA 38-DEMA Bullish Key Reversal Higher day 12 Model 12 4-day Model Bullish Bullish % Above 1-DMA % Above 2-DMA Intermediate-Term Model 1-DMA 212 February March April May June July August September October November December 213 February -DMA 1-DMA Corrective action -dma/1-dma cross is major resistance A 1-dma breakout would be bullish S&P TECHNICAL COMMENTS MAJOR SUPPORT LEVELS LD AND TURNED PRICES HIGR: The S&P technical condition is currently bullish given the 38-dema ultimately held and turned prices higher through the 2-dma. Now, prices have failed into the overhead 6-dma and previous support turned resistance zone of 141-to-142. This is to be expected given the back and filling that occurred into the 28-dma that proved support; a bullish circumstance. Now, given this and the sideways movement in prices...a breakout and close above the 1424 level would suggest the rally is clearly underway. The the initial upside target is overhead trendline resistance off the March-September 212 highs into the low 1 s or our sell zone. The models at this point, remain supportive of further gains. RCM T RHODES TECHNICAL INDICATOR REVIEW: The 2-day and 4-day models are both rising in bullish fashion; which supports higher prices. The % of stocks above their 1-dma surged to overbought levels and have corrected; another bullish circumstance. The % of stocks above their 2-dma stands at 6%...up +1% from the prior day s close. The -dma/1-dma was nascently violated in bullish fashion; this is a positive development. The Intermediate-term Model is bottoming in bullish fashion a clear 1-dma breakout is developing, and is quite a bullish buy signal. 4 M 1, 1, 212

5 MODEL PORTFOLIO POSITIONS I Gold ETF 2x Long DGP Occidential Petro Last: $ 4.11 TGT: $ 7. Entry: $.96 STP: $ 3. OXY Last: $ 7.37 TGT: $ 91. Entry: $ 7.4 STP: $ day BLI ( ) 4-day BLI ( ) 14-day BLI ( ) 2-day BLI (-4.498) 66 Gold 2x Long Occidental Petroleum DMA DMA DMA DMA 4 The 1-dma/2-dma 44 cross is a major 43 support zone, with a November 212 FebruaryMarch April May June July August September November 213 Febr bullish pennant forming. Also note the bullish head & shoulders neckline overhead The distance below the 4-dma is material; 7 plus both models are now rising in bullish fashion. November 212 FebruaryMarch April May June July August September November 213 Febr 7 Apache Corp APA Last: $ 76.1 TGT: $ 9. Entry: $ STP: $ 74.4 Microsoft MSFT Last: $ TGT: $ 36. Entry: $ 27.4 STP: $ day BLI ( ) 4-day BLI (-6.924) 14-day BLI (-6.876) 14-day BLI ( ) Apache Corp Microsoft Corp DMA DMA DMA 8 The decline 8 below the 2-dma is rather material; plus both models are rising. 7 Patience is warranted. t Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb DMA The decline off the 2-dma is material; but prices held trendline support with the models at buy levels. Also note the key reversal higher yesterday. ecember212 FebruaryMarch April May June July August September NovemberDecember213 Febru RCM T RHODES M 1, 1, 212

6 MODEL PORTFOLIO POSITIONS II CSX Corp CSX Last: $ TGT: $ 24. Entry: $ 2.2 STP: $ 19.4 N/A Last: $ - TGT: $ - Entry: $ - STP: $ - 4-day BLI (.6996) 2-day BLI ( ) DMA CSX Corp DMA Support 19. was violated, but a higher bottom than that in Dec-11 has formed; and resistsance was 19. regained. This, coupled with the positive model environment suggest higher prices tober November December 212 FebruaryMarch April May June July August September November December 213 Febr N/A Last: $ - TGT: $ - Entry: $ - STP: $ - N/A Last: $ - TGT: $ - Entry: $ - STP: $ - RCM T RHODES 6 M 1, 1, 212

7 STOCKWATCH POTENTIAL LONGS I China ETF FXI Last: $ $ - FedEx FDX Last: $ $ - 4-day BLI 4-day BLI (-.79) DMA 14-day BLI (3.972) FTSE China 2 28-DMA 31. There 3.are a number of breakouts: the bullish consolidation breakout; the -dma/28-dma cross held; and now a minor head & shoulders breakout. We will be buyers soon. Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 213 Feb Mar DMA 2-day BLI ( ) FedEx Corporation 2-DMA The bullish consolidation is clear, with prices unable to remain below the 8-dma/2-dma cross. We find this positive, with further gains ecember212 February March April May June July August September October NovemberDecember213 Febru bringing us in as buyers Parker-Hannifin PH Last: $ $ - N/A Last: $ - $ - 4-day BLI (-.7967) 2-day BLI (4.3232) 93 Parker-Hannifin DMA DMA The bullish consolidation has our 72 attention; along with the nascent 71 breakout 7 above the 8-dma/2-69 dma cross. mber 212 February March April May June July August September November 213 Febru RCM T RHODES 7 M 1, 1, 212

8 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. RCM T RHODES 8 M 1, 1, 212