TARGET. Head & Shoulders Bottom. Morning Futures

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1 T T Telephone: richard@rhodes-capital.com Web Address: MAY 212 US Dollar Index (Daily) Larger Head & Shoulders Bottom...But... - The bullish head & shoulders bottom pattern targets 91, which is roughly a +1% gain. However, Friday s bearish key reversal lower could throw a monkey wrench into the situation. We ll have to watch ncieckline support carefully. 4-day BLI ( ) US DOLLAR INDEX Continuous Bearish Key Reversal Lower 2-DMA TARGET Head & Shoulders Bottom Sep Oct Nov Dec 211 Mar Apr May Jun Jul Aug Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug FORECAST STOCKS: The European debt contagion has gained traction very quickly again; and is growing in scope. Greece remains on the front bunner, but not for long as Spain is being challeged. China remains on a growth deceleration curve, with growing concerns of a very hard landing which is reasonable, but not yet discounted by the markets. Also, lest us not forget that US economic data is starting to soften...surprising many. Expect it to continue apace. Collectively, we find all of this rather troubling as good news headlines are few and far between, which has led to increased selling pressure on rallies. STRATEGY: The S&P remains above long-term support at the 16- wma at 1184; which delineates bull/bear markets. However, recent weakness has carried prices down into the 2-dma at 12 a level that should hold over the course of the next several days. But the character of any rally attempt will be important as to whether it shall be given weakness is due to Friday s US Employment Situation report that was far worse than expected ; while others believe it is a combination of the report and the fact domestic and export China are faltering rather badly especially real estate. Quite simply, most are coming around to the idea that the Chinese economy is on rough footing, with very few positive data points as of late. As for Friday s employment report, it was simply horrid and below even the lowest Wall Street estimate printing +69k jobs. The previous two months were revised lower -49k; and the unemployment rate rose to 8.2% from 8.1%. What strikes us as troubling is that the economists are once again overestimating the CAPITAL MARKET COMMENTARY! WORLD MARKETS ARE MIXED ADING INTO MAY MORNING as European fiscal/debt concerns remain at the forefront of what actually are bothering traders and investors. The concerns aren t new, and we would be wasting time doing through these issues once again. We all know that Greece and Spain are the poster children for now. But having said this, let s note that Spain s stock market is up +1.7%, while Greece s is down another -4.%. The fact of the matter is that Spain will linger for a very long time; while Greece is will likely exit the Euro currency sooner rather than later if for no other reason than they are unable to make the onerous debt payments. Moving on, overnight S&P futures were sharply lower in the early hours of trading as Chinese equities were down rather sharply a not so small -2.7%. Some believe this OVERNIGHT PRICES Quotes at: 11:3am EST INDEX Morning Futures LAST DAILY CHG S&P up 1, Nasdaq 1 up 2, year Note Yield up 1.1%. bps Crude Oil down $ $ (.61) Euro up Yen down Gold down $ 1,617.3 $ (4.9) Foreign Indices 1 M CHG % YTD YTD % FTSE 1 Index down, % % German DAX down 6, % % French CAC down 2, % % Japan Nikkei 22 down 8, % % SSE China Composite up 2, % 1 6.2% India Sensex up 1,96..% % Brazil Bovespa down 3,43-1, % -3, % US Indices Dow Industrials down 12, % % Nasdaq 1 down 2, % % S&P Large-Cap down 1, % % S&P 4 Mid-Cap down % % S&P 6 Small-Cap down % -.3% 212

2 CAPITAL MARKET COMMENTARY economy and that the revisions are lower. In a growing economy, the economists tend to be too low, and the revisions much higher. This isn t the case now, and it should be noted vigorously. Gold Futures (Daily) Bullish Consolidation 4-day BLI (-.4983)! TRADING STRATEGY: Technically speaking, the S&P futures rallied from 1288 to 133 in what can only be described as a half-hearted rally attempt and failed in a substantial manner just below major overhead resistance. This has led the futures through the previous lows at 1288 which now becomes resistance upon any rally attempt. To this end, the futures printed 1262 overnight, and are trading a full 16 points higher at 12. We believe the early weakness to be more a function of Chinese market weakness; and the attendant rally since then a reflection that the Euro-zone didn t implode over the weekend. And its natural for the market to regain some of that which was lost in the sharp weakness of Friday due to the unemployment data. So, this leaves the S&P cash hard upon the zone we ve look cover our short position in the Russell 2 via TWM. In fact, TWM is just below its 2-day moving average at $36.7 a level we do believe will be tested today and perhaps tomorrow before it is clear that it shall provide resistance. Therefore, we are on cover watch for our current TWM position regardless of the fact that the US 1-Yr Note Yields (Weekly) Bearish Key Monthly Reversal Lower Price Oscillator ( ) The bullish consolidation suggests higher prices; however, 19 1 OZ GOLD ELECTRONIC Continuous we ll 19 only be really impressed once the 14-dma/ 18 7-dma 18is crossed. It will pay to be patient until higher 17 prices 17 are confirmed DMA DMA Mar Apr May Jun Jul Aug Sep Oct Nov Dec 212 Mar Apr May Jun Jul Aug head & shoulders bottom still projects to $39-to-$4. Be prepared. Outside of this, we ve recently shown our interest in buying gold and gold shares again; and we ll look upon weakness from current levels in which to consider stepping back into that cauldron once again. Also, we should note our bearish leanings towards Consumer Discretionary sector, of which the monthly chart printed a rare key monthly reversal lower. Thus, we ll be look at individual issues to get short this area in the days ahead Y TSY YLD NDX yr note yields are falling towards channel support; and doing with the % distance below the 3-WEMA at oversold levels. A massive could erupt at any time. 1 -WMA 3-WEMA M 212

3 S&P INDEX/ BROAD MKT INDICATORS The 2-dma/38-dema convergence S&P INDEX support level is under attack; and we ll expect it to hold in the days ahead. 18-DMA Major Resistance DEMA 2-DMA 38-DEMA day Model Bearish ledge - 4-day Model % Above - 1-DMA Declining - - % Above 2-DMA Nearly oversold 1-dma was given in bearish fashion. -DMA Intermediate-Term Model 1-DMA The trend is lower 1-DMA 211 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 212 Feb Mar Apr May Jun Jul Aug S&P TECHNICAL COMMENTS # T DECLINE HAS BEEN MATERIAL INTO MAJOR SUPPORT at the 2-dma/38-dema at 12; and we ll expect it to test and retest this level once or twice intraday as the bears tests the bulls mettle regarding the holding of this very import bulkhead. We think the bulls shall be successful if for no other reason that prices are showing some signs of becoming oversold putting the risk-reward higher. We would not be surprised to see prices rally to upwards of the 18-dma/6-dema zone between 132-to-13 before failing once again. Again, it shall be the character of ther rally that will be telling indeed. That said, we can also foresee a circumstance where the 12 level is sliced through like butter and even lower prices printed.. TECHNICAL INDICATOR REVIEW: $ The 4-day model remains in bearish decline, with the 14-day forming an ugly bearish ledge bottom higher from oversold levels. $ The % of stocks above their 1-day moving average has traded back to oversold levels. $ The % of stocks above their 2-day moving average stands at 41%...down -9% from the prior day s close. Note the bearish 1-dma breakdown. $ The Intermediate-term Model failed from its 1-dma; and is clearly trending lower. Expect further weakness. 3 M 212

4 PORTFOLIO: RHODES AGGRESSIVE DISCRETIONARY No. Trade Date Long/ Short Share No. Name Ticker Beta Port % Invest Entry Price Current Price Total Unrealized P/L Percent P/L Stop Loss Point 1 /31/212 L 1,27 Russell 2 2x Short TWM.4 2.% $ 42,991 $ $ $ 43,117 $ 126.3% 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.4 2.% $ 42,991 $ 43,117 $ 126 "<" Denotes Change Model Portfolio Inception ($1k): January 1, RECAP Starting Balance $ Performance: +2.34% Closed Positions $ (29,623) 26 Performance: +47.7% Open Positions $ Performance: +2.84% Dividends $ Performance: -3.7% PORTFOLIO YTD (Gain/Loss) $ 21,81 $ (29,369) -12.1% 29 Performance: +7.4% S&P YTD 4.43% 21 Performance: +1.22% Over/(Under) Performance % 211 Performance: -.8% TARGET 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. 4 M 212

5 MODEL PORTFOLIO POSITIONS I Russell 2 2x Sh TWM N/A Last: $ TGT: Entr y: $ STP: $ 3. $ - Last: TGT: Entr y: STP: 4-day BLI (4.964) day BLI ( ) UltraShort RUSSELL 2 ETF DEMA DMA The confirmed head & shoulders bottom targets the $39-to-$4 3 zone; but the 2- dma is just slightly overhead.. b Mar Apr May Jun Jul Aug Sep Oct Nov Dec 212 Mar Apr May Jun Jul Au 3 3 N/A Last: TGT: Entr y: STP: N/A Last: TGT: Entr y: STP: M 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. 6 M 212