Trade Alert - January 13, 2007

Model Portfolio Allocation Changes- This Week

Models Turn Somewhat More Aggressive

After turning partially defensive 3 weeks ago and reducing stock market allocations, the models now take steps to return to a more aggressive posture.

There had been renewed deterioration in December of most of the technical statistics followed by our models that gauge the underlying demand/supply condition of the market. While this fall's rally succeeded in erasing much of the very serious deterioration we had seen in these statistics earlier last year, some of these measures never fully recovered. And the market's action in December had not been favorable ... enough that the models triggered an anticipatory defensive reduction in stock market allocations.

But the models' logic is primarily trend-following and there was enough improvement last week in the market's underlying technical statistics to trigger some positive changes.

Portfolio Changes in the Performance Xtender: This model triggered an increase in its stock market allocation from the previous 70 percent back to 100 percent. It is liquidating the previous 30% cash allocation and purchasing a new position in an Over-the-Counter (OTC) index fund which tracks the Nasdaq.

Portfolio Changes in the Max Xtender: This model is selling its previous allocation in a leveraged LargeCap fund and using the proceeds to purchase a position in a leveraged OTC fund. The effect of this transaction does not change the overall exposure of the model to the stock market and maintains portfolio leverage at 1.5-to-1.

In the January newsletter we focused on the market's slowing momentum in December and suggested it was the precursor of an impending correction. We said the first sign to look for was a break of the market's steep uptrend line (red line on chart) that had defined the rally since July.

We got that break in the uptrend on the first trading day of 2007. But the market bounced nicely off of technical support provided by the 50-day moving average (blue line) ... a short term indicator that is actively followed by traders. Without much delay, the market then rallied strongly last week and closed above the recent downtrend line (in green) that has defined the short-term corrective sequence.

In rather short order, the market seemed to have put in the correction for which many market analysts have been looking. It has been clear that the market's rally was overextended. However, the risk is that last week's breakout to the upside was a "head fake" and that the correction is not over. If the S&P 500 quickly rolls over and drops from current levels, another round of the correction should follow. This would not surprise us actually because the market's continuing health needs a deeper, longer correction at this stage. It would not be at all unusual for the market to trace out a much longer-term complex correction after putting in the kind of run it has had since July 2006.

New Model 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).

'Performance Xtender'

(A model portfolio that invests selectively in stock market index funds, plus certain market sectors such as Energy, Gold and Real Estate, and in an Inverse Fund ("Bear Fund"), depending on current market trends for each type of investment. The allocation mix is designed to beat the market significantly during both bull and bear markets with only limited risk of volatility.)

Model Portfolio Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
BUY OTC Index Fund	30%	RYOCX	30%	OTPIX	30%	QQQQ
Corporate Bonds, or Money Market	Liquidate money market fund .

New Model Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
LargeCap Stock Fund	70%	RYZAX	70%	BLPIX	70%	SPY
OTC Index Fund	30%	RYOCX	30%	OTPIX	30%	QQQQ
Corporate Bonds, or Money Market	none.

'Max Xtender'

(A model portfolio that invests selectively in stock market index funds and in an Inverse Fund ("Bear Fund"), depending on current market trends for each type of investment. During strong market trends ... either bullish or bearish ... the model uses up to 2-to-1 leverage to magnify returns. The allocation mix is designed to beat the market substantially during both bull and bear markets but results in a relatively high risk of volatility.)

Model Portfolio Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SELL Lev'd LargeCap	50%	RYTNX	50%	ULPIX	50%	SPY
BUY Lev'd OTC Fund	50%	RYVYX	50%	UOPIX	100%	QQQQ
Corporate Bonds, or Money Market	ETF investors should sell 2/3rds of their SPY position and buy a fully-margined QQQQ position. Total portfolio leverage should remain constant at 1.5 to 1.

New Model Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Lev'd LargeCaps	50%	RYTNX	50%	BLPIX	50%	SPY
Lev'd OTC Index Fund	50%	RYVYX	50%	UOPIX	100%	QQQQ
Corporate Bonds, or Money Market	ETF Investors: Note that the SPY position is un-margined and the QQQQ position is margined 2 to 1. Total leverage should be 1.5 to 1.