Trade Alert - January 17, 2008

Model Portfolio Allocation Changes- This Week

Models Trigger 'Short' Positions

The model portfolios have triggered new positions to take advantage of what now appears to be the beginnings of a 'bear market' in stocks.

Both of our model portfolios are initiating positions that are 'short the market' and will benefit to the extent that stock market prices continue to drop. As we discussed in our recent Trade Alert of January 9th, there are several alternative ways to 'go short', some of which may not be accessible to you depending upon the type of account you have. Please refer back to the Jan. 9th Trade Alert for a detailed discussion.

The S&P 500 Breaks Three Critical Support Levels: The chart above shows the daily movements of the S&P 500 Index including today's closing value of 1,333. This important stock market index has violated three critical support levels in the past eight days while losing -6.5% in value.

As we discussed in the January monthly newsletter, a breakdown of these technical support levels ... particularly the "Long Term UpTrend Line" (in green on the chart) ... would confirm a reversal of the long-term trend in the market -- from up to down. We have further suggested that such a reversal of trend would likely signal the beginnings of what could be a multi-year 'bear market' similar to the one that occurred in 2000, 2001 and 2002 when the S&P 500 lost about 45% in value and the Nasdaq Composite lost about 80%!

Expect the Market to Bounce and ReTest the 1370 Level: It is very common in market behavior for prices to rebound after a 'breakdown' such as this and rally back to test the point of the breakdown. In this case, the 1370 support level on the S&P 500 was the 'point of breakdown'. It would not be unusual therefore to see the market attempt a rally within the next week and move back up to re-test the 1370 level. If the re-test of 1370 'fails' and the market rolls over into a new decline, the technical breakdown of this critical support level will be fully confirmed.

But the models are triggering an initial short position now, even though the breakdown is not fully technically confirmed. This is because there is a risk that the market will continue to plunge and never make any attempt to re-test the 1370 support level. This is exactly what happened just before the Market Crash of October 1987. After the market broke critical support that October, there was only one day of normal trading before the 'crash' began. So we suggest you do not delay in putting on the short position if you intend to follow this trading instruction.

Changes in the Performance Xtender: This model portfolio is allocating 40% to the initial short position. This can be accomplished by investing in an 'Inverse' Mutual Fund (also known as Bear Funds) such as either Rydex's Ursa Fund (ticker symbol RYURX) or ProFund's Bear Fund (ticker symbol BRPIX). Both of these funds are structured to deliver a return that is 'inverse' the S&P 500 index. Another good option would be the Prudent Bear Fund (ticker symbol BEARX). If you are an ETF investor, then the ETF ticker symbol 'SH' would be the appropriate 'short SP 500' vehicle to use. Alternatively, if you have a margin brokerage account, you could go short the SP 500 tracking ETF ticker symbol 'SPY'.

Changes in the Max Xtender: This model portfolio is more aggressive and as an 'initial' position will go 100% short the S&P 500 index. Any of the methods suggested above would suffice. When and if the model adds to this short position at a later date, it will go 200% short the index by investing in an 'Ultra' Inverse Fund which uses leverage to be 200% short.

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 Inverse Fund	40%	RYURX	40%	BRPIX	40%	SH
Corporate Bonds, or Money Market	.

New Model Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Precious Metals Fund	10%	RYPMX	10%	PMPIX	10%	GDX
Inverse Bear Fund	40%	RYURX	40%	BRPIX	40%	SH
Corporate Bonds, or Money Market	50% Money Market Funds.

'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
BUY Inverse Fund	100%	RYURX	100%	BRPIX	100%	SH
Corporate Bonds, or Money Market	-.

New Model Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Inverse Bear Fund	100%	RYURX	100%	BRPIX	100%	SH
Corporate Bonds, or Money Market	.