While it galls me to hear the Fed say that core inflation, which excludes food and energy prices, has "improved modestly," I'm reminded that one can't fight the Fed. Yes, stock prices rallied after the Fed made their post-FOMC statement yesterday, but it didn't last long. So maybe investors weren't fooled by the Fed's fictional appraisal after all.

Not until today, anyway. So it's back to rally mode as CPI core consumer prices rose just 0.1% in May and are up only 1.9% over the last 12 months. Inflation, as defined by the Fed is now within its guidelines of 1 to 2% per year. So what's to worry? Nothing, except $3.00 gasoline and $9.00 hamburgers are busting John Q. Public's budget. The Commerce Department reported that consumer spending increased for the second consecutive month. So they say that business is getting better. But it isn't. A good chunk of that increased spending is for food and energy.

Indeed, the Wall Street Journal reported this week that restaurants are beginning to feel the pain. VectorVest shows that the Food(Restaurant) Industry Group peaked on June 4th and has fallen 5.3% since then. Coincidentally, June 4th is the same day that the Price of the VectorVest Composite peaked. It's down 1.9% since then.

As a matter of prudence, you should look at Industry Group performance on a regular basis. Simply click on Viewers on the Main Tool Bar; then click on Industry Viewer. The Industry Groups are presented to you ranked by Relative Timing, RT. As of last night, the Chemical(Fertilizers) group was at the top of the list. A two-year daily graph of this Group shows that this Group's RT rose above 1.00 eleven months ago and has been above 1.00 ever since. Oh my, what a wonderful ride they have had. Anyone who has been looking at these Industry Group displays had numerous opportunities to pick some truly great winners. But that's not what's concerning me today.

Right now I'm concerned about which stocks might be going down more than I am about which could go up. So let's sort these Industry Groups by RT ascending. Here we see the poorest performing Industry Groups at the top of the list. Not surprisingly, most of them are sensitive to interest rates. These include Home(Textiles), Building(Residentl/Comml), Retail(Home Furnishings), Financial(Mortgage Services), and so on. Some of these groups, such as Food(Dairy Products), are sensitive to energy costs. Weak stocks in these groups should be sold or at least watched very carefully.

Rising inflation, interest rates and energy costs are only part of the reason I'm concerned about lower stock prices at this time. The main reason is that we are entering the three poorest performing months of the year and our Market Timing System has been sounding alarms for the last two weeks. I am not a forecaster and stock prices might take off come Monday, but prudence tells me that it's time to start thinking about protecting your portfolio. You don't have to sell your stocks to do this. Several techniques for protecting profits were presented as our March 31, 2000 "Strategy of the Week." In addition, the use of an Option Collar to protect a position in a single stock was described on February 18, 2000. The use of an Option Collar to protect an entire portfolio was presented on May 28, 2004.

This week's "Strategy of the Week," called "Low Cost Insurance," shows how to protect an entire portfolio by using an Option Collar. Visit the VectorVest University and watch this video even if you are unfamiliar with options trading. You can only benefit by learning all you can about Portfolio Protection.