AlphaProfit Newsletter: October Indicator Update and Repositioning Changes

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AlphaProfit Newsletter: October Indicator Update and Repositioning Changes
October 1, 2008

Dear Valued Subscriber,

The Core and Focus model portfolios were repositioned after the markets closed on September 30. The current model portfolio compositions as well as exchange traded fund (ETF) and mutual fund recommendations are available in the Subscriber Login area of the web site.

Market Developments

Confidence in the current financial system is being undermined. Lehman Brothers has filed for bankruptcy while leading banks like Washington Mutual and Wachovia have failed in a matter of days. The credit crisis has taken a global dimension with leading financial institutions in Europe coming under significant strain.

After engaging in intense discussions, the U. S. House of Representatives voted down a $700 billion package aimed at rescuing the ailing financial industry. The ‘financial tsunami’ has raised the specter of a deep U. S. recession and a global slowdown. Shares in economically sensitive sectors such as materials and industrials have suffered substantial declines and pulled broad equity averages lower.

Repositioning Changes

Congressional leaders along with the White House staff continue to engage in efforts aimed at shoring up confidence in the financial system. The range of possible outcomes in the period ahead has widened. If the efforts made by U. S. government and central banks worldwide are successful, confidence in the financial system can return and pave the way for sustained recovery in financial and consumer shares. If such efforts are however less successful, the possibility of a U. S.-led global slowdown will increase.

To improve the resilience of the model portfolios to a wider range of possible outcomes and enhance their ability to participate in a potential recovery, we are adding exposure to biotechnology and IT services groups.

We believe investors will value the secular growth characteristics of biotech companies in an environment where earnings growth is likely to be harder to find. Adding investment appeal, takeover activity in the biotech space is on the rise as leading pharmaceutical companies look to biotech to revive sagging growth prospects.

The IT services group consists of outsourcing service providers like Accenture, payroll service providers like Automatic Data Processing, and credit card processors like Visa. Some of these companies enjoy stable revenue streams from long-term contracts while others stand to benefit from an improving financial and consumer milieu. Exposure to the IT services group provides the model portfolios with a relatively low-risk means to benefit from possible recovery in the financial and consumer sectors.

Rating the AlphaProfit Sector Portfolio Indicator 'Buy'.

Following repositioning, we rate the AlphaProfit Sector Portfolio Indicator 'Buy'.

In recent weeks, fear in the market as measured by the volatility index or VIX has at times escalated to levels indicative of panic. Volatility is likely to remain at elevated levels in the near-term. Confidence in the financial system needs to be restored quickly to reduce the risk of a major decline. A combination of relief measures such as the passage of a financial bailout plan, increase in insurance limit on bank deposits, reduction in short-term interest rates, and moves to add liquidity to the financial system can set the stage for a rapid rise in stock prices.

Looking beyond this near-term volatility, the cost and effectiveness of relief measures, quality of third quarter earnings reports, and outlook for corporate profits in the first half of 2009 will become increasingly important factors in influencing the course of equity prices.

We encourage subscribers to maintain adequate cash reserves and have appropriate diversification in their overall portfolio to navigate through these challenging times.

Model Portfolio Performance

Model portfolio returns as of September 30, 2008 are as follows:

	Sep. 2008	3Q2008*	YTD*	1 Year	3 Year	4 Year	Sep. 2003 Inception
AlphaProfit Focus™ Model Portfolio	-12.5%	-19.1%	-20.9%	-25.3%	-2.2%	38.5%	77.8%
AlphaProfit Core™ Model Portfolio	-13.3%	-15.4%	-21.8%	-23.4%	2.6%	31.2%	48.1%
DJ Wilshire 5000 Total Market Index	-9.4%	-8.7%	-18.7%	-21.2%	1.9%	16.9%	34.1%

^* 3Q2008 refers to the Jun. 30, 2008 to Sep. 30, 2008 period while YTD refers to the Dec. 31, 2007 to Sep. 30, 2008 period.

Factors driving performance of recommended sectors and industry groups and their investment outlook will be discussed in the October Report due for publication on the 12th.

We welcome your comments.

Best regards,
Sam Subramanian
AlphaProfit Investments, LLC
Ideas. Insights. Results.
http://www.alphaprofit.com

Notes: The AlphaProfit Sector Investors' Newsletter™ is for information purposes only. AlphaProfit Investments, LLC is not soliciting any subscriber to buy or sell any security. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Before buying or selling any mutual fund, exchange-traded fund, security, or investment, read the prospectus carefully. For securities held in brokerage accounts, read the broker's specific terms and conditions which apply to trading of the securities. AlphaProfit Investments, LLC cannot and does not give any assurance that the present or future model portfolio changes will be profitable. Past performance is not a guarantee for future results. Factual material is obtained from sources believed to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any of the mutual fund companies, brokers or entities connected with the exchange-traded funds mentioned in the newsletter. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of this newsletter. No part of the AlphaProfit Information may be reproduced or re-transmitted in any manner without written permission of AlphaProfit Investments, LLC.