Trade Alert - July 30, 2006

Recommended Portfolio Allocation Changes- This Week

Models Turn Bullish ... Once Again

Against an increasingly bearish backdrop (including a new war in the Middle East), the stock market staged a surprising recovery in the past two weeks. The recovery was strong enough for our models to reverse the bearish signal from two weeks ago that caused us to reduce allocations to the market. This weekend, the models have moved back to a moderately bullish posture in stocks and also triggered a new BUY signal for bonds.

Longer Term Bearish Warnings: Our longer-term analysis of the market's condition has been increasingly cautious in recent months because of the steady deterioration in a battery of technical indicators that gauge the underlying health of the market. If you have been following this newsletter, you know that we have been concerned about the potential for a new bear market to begin soon.

We have also discussed the importance of the 1245 support level on the S&P 500 index in terms of signaling whether the bull market is still in force or whether a bear market may be beginning. Since the market has now been able to recover from two separate excursions below the 1245 support level, the bullish case has been strengthened. But even though the models have turned moderately bullish again, we are increasingly skeptical of this market and wary of the risks. Our longer-term indicators that measure the underlying balance between supply and demand in the stock market have shown very little improvement. And the new war in the Middle East has heightened uncertainties.

See-Saw Market: If you are frustrated by the models' reversal of a signal issued just two weeks ago, reducing allocations and now increasing them again, remember that the fundamental principal behind the models' logic is risk management. They are quick to reduce allocations when the market shows signs of falling out of a sustained bullish trend. But they also follow the market's movement closely and are quick to respond positively to a new bullish trend. This back-and-forth trading may seem inefficient at times and result in selling near the bottom of short-term corrections. But this inefficiency in the short run is more than made up for in the long run by the models' ability to lock into the longer-term trends early. It helps to ensure that the portfolio capitalizes fully upon each significant bullish uptrend and avoids significant loss during the downturns.

If the market doesn't follow-through here on the recent recovery and rolls over into a renewed downtrend, the models will reduce allocations again to protect the portfolios.

Changes in the Growth Portfolio: This model is moving to a moderately bullish posture by increasing its previous 1/3rd allocation in LargeCap stocks to 2/3rds. The remaining 1/3rd of the portfolio is moving out of money market funds and into bonds -- preferably an intermediate corporate bond fund.

Changes in the Conservative Portfolio: This model is adding a new 33% allocation in a LargeCap stock fund. The remaining 67% is moving out of money market funds and into bonds -- preferably an intermediate corporate bond fund.

Note on Bond Funds: We do not recommend the bond funds offered by Rydex Investments and ProFunds because they hold long-term government bonds that we have found to be too volatile. For that reason we recommend a Fidelity bond fund that invests in intermediate-term, investment grade corporate bonds that has been a smooth performer over the years. Its ticker symbol is FBNDX as is available through most brokerage firms. However, before investing, check with your broker to make sure there will be no "early redemption fee" or "short-term trading fee" charged if you sell the fund within a certain period. If they do charge such a fee we would recommend investing in the exchange traded fund that holds intermediate corporate bonds (ticker symbol LQD) or some other intermediate corporate bond fund that your broker may offer.

Recommended Portfolio Allocations

Model Portfolio Details

The tables below provide the percentage allocation details and mutual fund ticker symbols for investors following the Model Portfolios by using funds from either of the Rydex Investments or ProFunds mutual fund companies -- or alternatively, investors using exchange traded funds (ETFs).

'Conservative Portfolio'

(A model portfolio that invests selectively in stock market index funds, a bond fund or money market funds, depending on current market trends for each type of investment. The allocation mix is designed to minimize potential losses while capturing most of the upside appreciation during strong, bull market conditions.)

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
BUY LargeCap Fund	33%	RYZAX	33%	BLPIX	33%	SPY
Corporate Bonds, or Money Market Funds	Invest remaining 67% in Fidelity Investment Grade Bond Fund, ticker symbol FBNDX. ETF investors can use LQD or similar fund.

New Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
LargeCap Stock Fund	33%	RYZAX	33%	BLPIX	33%	SPY
Corporate Bonds, or Money Market Funds	67% Fidelity Investment Grade Intermediate-Term Corporate Bond Fund (ticker symbol FBNDX). ETF investors can use LQD or similar fund.

'Growth Portfolio'

(A model portfolio that invests selectively in stock market index funds, a bond fund or money market funds, depending on current market trends for each type of investment. The allocation mix is designed to avoid significant losses during bear markets and also beat the market during bull markets.)

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
INCREASE LargeCaps	33%	RYZAX	33%	BLPIX	33%	SPY
Corporate Bonds, or Money Market Funds	Invest remaining 34% in Fidelity Investment Grade Intermediate-Term Corporate Bond fund (ticker symbol FBNDX). ETF investors can use LQD or similar fund.

New Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
LargeCap Stock Fund	66%	RYZAX	66%	BLPIX	66%	SPY
Corporate Bonds, or Money Market Funds	67% Fidelity Investment Grade Intermediate-Term Corporate Bond Fund (ticker symbol FBNDX). ETF investors can use LQD or similar fund.