Trade Alert - October 9, 2005

Recommended Portfolio Allocation Changes- This Week

Market Reversal Triggers Allocation Shifts

The market has battled for almost 3 months to hold above the critical 1220 break-out level on the S&P 500 Index. We have said that the technical analysis for the market remained positive as long as the S&P could hold this decisive level and move above it. Until last week, it did.

Last week the market staged a dramatic break-down below the critical 1220 level. The break-down suggests that we may already have seen the end of this bull market cycle that began 3 years ago.

However, the break-down was a bit surprising. The historically typical warning signals for the beginning of a Bear Market are not yet in place. For the past two months we have seen a steady deterioration in our technical indicators of the supply/demand condition of the market. However, we have historically seen anywhere from 4 to 18 months of this type of deterioration before the end of bull markets. For this reason, it would appear somewhat early for this bull to end.

And there are several reasons to believe that there is some additional life left in this bull. First of all, this type of volatile break-down is not at all unusual during the final months of a bull market. Volatility tends to increase as a bull market ages. Second, last week's sharp break-down may be nothing more than the final shakeout of a corrective phase in the market. Looking back over the past half-year, the market rallied from mid-April to early-August. But the S&P 500 Index failed to exceed the August high, trading essentially sideways for the past two months. Last week's break-down may have been simply the final resolution of that two month correction. Third, the market is now resting on support provided by the 200-day moving average and the historical trendline (shown in red) linking the bottoms during the past year. From a technical viewpoint, this is a logical level from which investors could ignite a new rally.

• Bottom line, while the break-down increases the odds that the bull market may be finished, the market still has a fighting chance to recover from here and rally one more time.

The statistically-based logic in our investment models has also reacted to last week's downside action. The changes outlined below are initial steps. If the market continues to drop, the models will trigger additional defensive measures to reduce stock market exposure.

In the Performance Xtender -- This model is shifting out of its small, 20% allocation in SmallCap stocks because they have begun to under-perform and are too volatile for the increasingly risky market environment. We recommend that you reinvest the allocation by increasing the existing position in the LargeCap International stock fund. Rydex investors should reinvest only 15% of the 20% allocation because Rydex's fund (RYEUX) uses 1.25-times leverage. The remaining 5% can go into a money market fund.

In the Max Xtender -- This model is also moving out of SmallCap stocks and into International. In addition, it has triggered a reduction in leverage from 2 to 1 down to 1.50 to 1. This can be accomplished by selling the Leveraged SmallCap fund and reinvesting in the non-leveraged International fund. Note that Rydex investors should invest only 40% of the 50% allocation in the International fund (RYEUX) because this fund is leveraged 1.25 to 1. For Rydex investors, the 10% remainder can go into a money market fund. ETF investors should take careful note of the reduction in leverage from 200% down to 150%. This can be accomplished by selling the entire leveraged position in IWM and reinvesting the net proceeds as an unleveraged position in IEV.

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 alternaively, investors using exchange traded funds (ETFs).

'Performance Xtender'

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SELL SmallCap Fund	20%	RYAZX	20%	SLPIX	20%	IWM
BUY International	15%	RYEUX	20%	UEPIX	20%	IEV
Corporate Bonds Cash	Rydex investors: Place the remaining 5% in money market funds.

New Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
International Stocks	45%	RYEUX	60%	UEPIX	60%	IEV
Gold Stocks Fund	20%	RYPMX	15%	PMPIX	20%	GLD
Energy Stocks Fund	20%	RYEIX	15%	ENPIX	20%	XLE
Corporate Bonds Cash	Money Market Fund: 15% if using Rydex funds; 10% if using ProFunds.

'Max Xtender'

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SELL Lev'd SmallCap	50%	RYTNX	50%	UAPIX	100%	IWM
BUY International	40%	RYEUX	50%	UEPIX	50%	IEV
Corporate Bonds Cash	NOTE: Rydex fund investors should place remaining 10% in a money market fund.

New Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
International Fund	40%	RYEUX	50%	UEPIX	50%	IEV
Lev'd MidCap Fund	50%	RYTNX	50%	UMPIX	100%	MDY
Corporate Bonds Cash	NOTE: Rydex investors should have 10% in money market. ETF investors should only have their MDY position leveraged 2 to 1..