Trade Alert - March 12, 2006

Model Portfolio Allocation Changes- This Week

Rotation Out of MidCap Stocks

Our models have maintained a position in MidCap stocks for over a year. They have outperformed LargeCaps over this entire period. And now, finally, our models are rotating out of MidCaps and back into LargeCaps. In addition, the Performance Xtender is exiting its allocation in Energy stocks.

The rotation out of MidCap stocks is the result of our modeling technology triggering a reduction in the volatility of our portfolio investments in order to increase the defensiveness of the portfolios against a turndown in the market. As we have discussed in recent weeks, our models are reading an increasing level of risk in the market's condition. And we have explained that the market is showing increasing signs of nearing the final peak of the current bull market that is over 3 years old. This move to increase the defensiveness of the portfolios is probably just the first step in a process that may eventually lead the models to completely exit the stock market.

In the Performance Xtender: This model is selling its 20% allocation in Energy stocks and reinvesting the proceeds into LargeCap stocks. When this trade is combined with the rotation out of the 40% allocation in MidCap stocks into LargeCaps, this model will have a new, 60% allocation in LargeCaps.

In the Max Extender: This model is rotating out of its 50% allocation in a MidCap stock fund and reinvesting proceeds in a LargeCap stock fund. This trade will leave the portfolio leveraged by a factor of 1.5 to 1.

Has the Bull Market in Energy Ended? We thought we should show you this chart of the 3-year+ bull market in Energy stocks. The Perforamance Xtender has been in and out of this investment multiple times during the past several years, capturing much of the rise. The rally has been quite impressive and is obviously tied to the jump in crude oil and natural gas prices.

When a bull market in something goes parabolic, as this one has since early 2005, you know that the market has attracted a great deal of speculative interest that can push prices way past the fundamentals. And, you can expect some kind of "blow-off top" to occur that is followed by some kind of substantial correction that bleeds out the speculative investors. We have been alert for signs of such a top and we now think the top may have just occured. As you can see in the chart above, the recent drop in Energy stocks has broken down through an uptrend line drawn through the most recent intermediate bottoms during the rally.

We will need additional confirmation of this trend-break before declaring the beginning of a correction. But if the bullish trend is indeed over, we would expect to see a fairly deep correction of the rally which began back in 2002. And the correction could possibly last for more than a year. Since there are such strong fundamental conditions supporting a much longer term bull market in Energy, we tend not to believe that the current blow-off top (if that is what it is) is a final top, but rather that we may be looking at a very important intermediate top within a much longer term bull market in Energy. And, given the strong fundamentals, it is possible the correction may not prove to be that deep, but rather just trend sideways for a significant period of time.

The interesting question is whether a deep and/or persistent correction in crude oil and in Energy stocks could help fuel new enthusiasm for owning stocks generally and ignite a powerful new leg of the bull market in US stocks. We can only wait and see how this plays out.

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
SELL Energy Fund	20%	RYEIX	15%	ENPIX	20%	XLE
SELL MidCap Fund	40%	RYAVX	40%	MDPIX	40%	MDY
BUY LargeCap Fund	60%	RYZAX	60%	BLPIX	60%	SPY
Corporate Bonds, or Money Market	ProFunds investors: Also sell the 5% allocation in Money Market funds in order to generate enough proceeds to purchase a 60% allocation in LargeCaps.

New Model Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SmallCap Stock Fund	40%	RYAZX	40%	SLPIX	40%	IWM
LargeCap Stock Fund	60%	RYZAX	60%	BLPIX	60%	SPY
Corporate Bonds, or Money Market	Money Market Funds: ProFunds investors only should be holding a 5% allocation in Money Market.

'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 with a relatively high risk of volatility.)

Model Portfolio Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SELL MidCap Fund	50%	RYAVX	50%	MDPIX	50%	MDY
BUY LargeCap Fund	50%	RYZAX	50%	BLPIX	50%	SPY
Corporate Bonds, or Money Market	-

New Model Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Lev'd SmallCap Fund	50%	RYTNX	50%	UAPIX	100%	IWM
UnLev'd LargeCaps	50%	RYZAX	50%	BLPIX	50%	SPY
Corporate Bonds, or Money Market	ETF Investors: Note that the SPY position is un-margined and IWM is margined 2-to-1. Rydex Investors: Note that Rydex does not have a leveraged SmallCap fund, so we have substituted RYTNX.