Trade Alert - September 18, 2005

Recommended Portfolio Allocation Changes- This Week

A New Defensive Posture

The Performance Xtender model triggered a shift this week into Gold and Energy stocks.

Gold and Energy are both sectors which have historically proven to be "defensive" in character. This means that they have tended to go up in value when the stock market has gone down in value. Along with the Real Estate sector, we have incorporated Gold and Energy into the list of investment options that are available to the Performance Xtender model ... and this week the model took advantage of this option.

This allocation shift brings the total percentage of the portfolio dedicated to defensive stocks up to 40%. Without a doubt, we have to interpret this new signal as a bearish sign within the overall scheme of our market analysis.

We have previously discussed our analysis of various technical market factors which had begun to show some signs of deterioration in the underlying health of this bull market. The continuing strength of Energy and the new jump in Gold stocks add to that picture of deterioration.

This is not to say that we necessarily expect an immediate downturn in the market. In fact, the market could still see one more significant burst upward. But the overall technical signs point to the eventual end of this bull market. The kinds of deterioration we are seeing now tend to occur 4 to 8 months before the end. Moreover, a bull market tends to fall apart gradually with its different sectors falling away at different times -- not all in unison.

Although our longer-term technical indicators still suggest a continuation of this bull market for several months at least, the shorter-term technical picture is much more concerning. For several weeks now we have been watching the market's battle to hold above its recent critical level of breakout at about 1220 on the S&P 500 Index. So far, it has survived that battle but still remains vulnerable to a breakdown. A breakdown here would be a very bearish development and could possibly signal the end of the bull market cycle.

If the market were to breakdown here, we would expect quick action from our investment models to shift into a more defensive posture.

Recommended Portfolio Allocations

Model Portfolio Details

'Performance Xtender'

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SELL MidCap Fund	40%	RYAVX	40%	MDPIX	40%	MDY
BUY Gold STock Fund	20%	RYPMX	15%	PMPIX	20%	GLD
BUY Energy Fund	20%	RYEIX	15%	ENPIX	20%	XLE
Corporate Bonds Cash	ProFunds Only: Place remaining 10% in money market fund. ETF Investors: We recommend the RYPMX stock fund over the GLD ETF investment.

Current Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
International Stocks	30%	RYEUX	40%	UEPIX	40%	IEV
Gold Stocks Fund	20%	RYPMX	15%	PMPIX	20%	GLD
Energy Stocks Fund	20%	RYEIX	15%	ENPIX	20%	XLE
SmallCap Fund	20%	RYAZX	20%	SLPIX	20%	IWM
Corporate Bonds Cash	10% Money Market (only if you are following this model with Rydex or ProFunds investments)

'Max Xtender'

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Corporate Bonds Cash	-

Current Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Lev'd SmallCap Fund	50%	RYTNX	50%	UAPIX	100%	IWM
Lev'd MidCap Fund	50%	RYTNX	50%	UMPIX	100%	MDY
Corporate Bonds Cash	NOTE: Rydex does not have leveraged SmallCap or MidCap funds. Therefore, their leveraged LargeCap fund (RYTNX) is substituted. ETF investors should be 100% margined in both IWM and MDY, for a fully invested 200% position.