Trade Alert - October 23, 2005

Recommended Portfolio Allocation Changes- This Week

Market Breaks Critical Technical Support

Market action was certainly mixed last week with the Nasdaq and various other industrial sectors trading up, but significant bearish developments transpired beneath the surface. Many indicators of the market's underlying health continued to deteriorate markedly. Reading an increasing level of market risk, our investment models are triggering additional allocation shifts in order to become even more defensive.

From a fundamental viewpoint, investors seem to be reacting to increasing inflation fears and the comcommitant threat of toughening Fed policy toward increasing interest rates. In addition, early announcements on corporate third quarter earnings have been somewhat disappointing.

Technically Significant Breakdown: Technically, the market closed below an important support level defined three ways: 1) the critical "trendline" (in red) linking the bottoms of this bull rally which began back in August of 2004; 2) the support line at 1182 on the S&P 500 (in blue) from the "reaction low" in April; and 3) the popular 200-day moving average (in green). During the week, the market traded up to "test" these levels, but the attempt failed ... at least for the week. The failure was a negative indication that suggests additional downside weakness.

The breakdown also served to confirm the very bearish "failed-breakout" pattern signaled by the market several weeks ago when it first broke back down through the 1220 breakout level (dashed line in red). The market had struggled to stay above this level since July. The bearish failed-breakout pattern usually portends a sharp drop of significant magnitude. At the very least, it is now fairly likely that the market will drop close to the lower level of support (in red) around 1140 on the S&P 500 ... if not lower.

Is the bull market over? It could be ... and the negative action of the past two weeks increases the liklihood that it could be over. From an historical perspective, this bull market has achieved a level of appreciation that is about average; and in terms of duration, the market now exceeds the average length of bull markets by several months.

Until several weeks ago, our longer-term indicators of the market's technical condition still suggested a continuation of the bull market. But the recent deterioration in these indicators has been substantial and the odds now are more even that the bull may be dead and the bear is underway.

That's not to say we might not see a market rebound this coming week ... or soon, after a moderate amount of additional weakness. The market certainly is very "oversold" on a momentum basis and it would not be at all unusual for some rebound to develop here. And the market still has a fighting chance to recover from this level, or slightly lower, and stage the strong "fourth quarter rally" that Wall Street has been expecting.

• 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.

In the Performance Xtender -- This model is moving to a 40% position in cash (money market) by selling Energy and reducing its position in International stocks. Note that the International position should be reduced by 1/3rd.

In the Max Xtender -- This model is moving to an unleveraged position and is now effectively 100% invested in Midcap stocks. If you are following this Model Portfolio with either Rydex or ProFunds investments, you should be holding a 50% position in their 2 to 1 leveraged Midcap fund which gives you effectively a 100% invested position. But in addition you will be holding 50% of your portfolio in money market funds.

[Note that the market has deteriorated enough that a continued sharp drop in the market from here could trigger a hedging response from either of these Model Portfolios. Hedging triggers can occur mid-week, so we advise you to keep a close watch on your incoming email in case a Trade ALert is issued.]

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 International	15%	RYEUX	20%	UEPIX	20%	IEV
SELL Energy Fund	20%	RYEIX	15%	ENPIX	20%	XLE
Corporate Bonds Cash	Place sale proceeds in money market funds.

New 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
Corporate Bonds Cash	Money Market Fund: 50% if using Rydex funds; 45% if using ProFunds; or 40% if using Exchange Traded Funds.

'Max Xtender'

Recommended Changes for this week	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
SELL International	50%	RYEUX	50%	UEPIX	50%	IEV
Corporate Bonds Cash	Place sale proceeds in Money Market Funds (ETF investors should reduce margin to zero).

New Recommended Portfolio Allocations	Rydex Funds		ProFunds		ETFs
	Allocation	Ticker	Allocation	Ticker	Allocation	Ticker
Lev'd MidCap Fund	50%	RYTNX	50%	UMPIX	100%	MDY
Corporate Bonds Cash	50% Money Market Funds (except ETF investors).