January 29, 2012

Dan Shy

dan.shy@gmail.com

IN FOCUS:
Equities and Dividend Investing Outlook

Last week when looking at the possibility of hedging dividend and long
Trading Outlook

term investing exposure I stated: What about hedging thoughts? Well at this point, I would really need to see some sort of 'congestion' to even develop a 'plan of attack' on how to instigate such a hedge. At the current time, we are just heading higher and higher. So I will wait. - Aileron Market Balance Issue 12, January 22, 2012 At that point, we had simply continued higher without a lot of congestion SPX S&P 500 Index One Hour Chart as of Previous Week

Summary of A.M.B. Model Portfolio

True, there was a bit of congestion there at the end of the week as you can see on the one hour chart. But there really wasn't a lot of firm congestion. As you can see from the above chart, from Thursday to Friday, we congested, or 'channeled' for a while between the 1310 region and 1316 for about 12 trading hours on the active sessions, or about 24 hours with the extended sessions. With that I needed, as I said, to see more. So what has occurred over the last week?

January 29, 2012

Well, we got a bit more movement on the one hour chart SPX S&P 500 Index One Hour Chart Including The Last Week

and lower lows instead of higher highs. It's from such factors that I form decisions and is how I build parameters. This is the reason that in the past, I have referred to specific levels in the markets as 'decision points'. From these factors or price levels in the markets, I form my decisions and parameters as to what to do, or how to build a coherent 'plan of attack'. Now, returning to the state of the market, in the overnight hours on this Sunday evening, we immediately moved down to support near the 1300 region. For a dividend account the size of the A.M.B. portfolio, as I have mentioned in previous issues relating to tail risk1 and appropriate risk to account size, I would not necessarily hedge against a downturn at this point. For those factors, I would use this data as a trade as I have mentioned in previous issues; and will detail later in this issue. For any dividend investing accounts larger $5,750.00 that hold a few dividend stocks of any size, a hedge could be considered. With what? The last time I mentioned a hedge, I was looking at a June 130 Put for larger accounts, which at the time was going for approximately $7.89 ($789.00 as equity or stock options are priced in multiple of 100). That same option today is running about $5.98 ($598.00). So as a side note or lesson, by building parameters to 'listen' to the market and not buying that option to hedge based on a 'gut feel', and since the market moved higher, we saved an account $1.91 ($191.00) per option. If the market says 'don't hedge' because it's moving higher? You can save yourself some money, and well not hedge. That was then. This is now. So what would I hedge with for a larger account? A June 134 SPY Put. I would want to be in the money (ITM) when I buy the option, and about 4 to 6 months in the future. But such a hedge would only be initiated when I see continued weakness in the market. The main thing I am curious in this regard is that, come Monday, whether or not we continue to rally off of the 1300 region of support. If we rally off of that region of
1 Exact Link - http://www.youtube.com/watch?
v=hG7s13njBVM

We made a new high near 1333. But we have a full week of congestion now to work with, as we settled on Friday at about where we began on Monday. In addition, if you notice, the one hour chart has demonstrated that the 50 period exponential moving average (ema) is proving to be good support, really, since the beginning of this year SPX S&P 500 Index One Hour Chart Year to Date

But keep in mind that the 50 period exponential moving average acts as a 'general' guide. Half way through the month, we peaked through that level briefly, before heading higher. So remember, this area of support is a general region of support. Not a 'magic line' that if violated, means the market is heading lower. We need to see solid breaks below this region,

January 29, 2012

support? Then 1300 region would be the support level that I would begin to instigate such a hedge. But please remember that this is all for accounts larger than $5,750.00 and with a few stocks within it. For the A.M.B. Portfolio, I would not instigate this hedge. The dividend account, at least at this point, is just too small. the active open of equities trading at 9:30 am est. I will continue to watch the stock market, and will detail my thoughts as events unfold.

Commodity Futures Trading Thoughts

Commodity Market #1 March Soybeans (SH12 or for ThinkorSwim /ZSH2): Last week I talked about 'stalking' this market. I wanted to see it move lower, to set up for a double bottom by which to trade long the seasonal tendency. The exact opposite happened. We moved higher. March Soybeans One Hour Chart

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,738.60 in the larger trading portion of the portfolio, there will only be 'brief day trades' at this stage of the game for Commodity Futures trading in order to escape the risk of over-leveraged gap opens in the commodity futures markets. This is an attempt to demonstrate how account size relates to trading style. As I mention in my methodology series2, as the 'trading sister' reaches $30,000 I will graduate the account into 'swing-trading' and demonstrate how I would go about doing this. The Forex account has $65.97 and is considered a micro-forex account for the purposes of the model portfolio. I am not attempting to demonstrate 'profitable' forex trading; but rather how a market professional would demonstrate building an entirely new methodology in what is a new arena for him.

Stock Trading Thoughts

Stock Trade #1 SPY (June Puts): But I would consider a trade. The option code I am looking at in ThinkorSwim is: .SPY120616P134 So a June 134 SPY Put if the S&P 500 Index Does not break higher than 1333 and Breaks below 1300

So what now? Well, I still want to see weakness by which to form a long position. Notice the Daily Chart March Soybeans Daily Chart

then the trade could be initiated, with a stop / loss of around 0.90 or $90.00. My comments on the tail risk3 present in both a hedge and a trade in one portfolio remains from previous newsletter issues. In other words, do not both hedge, and trade this movement. What if the market does not rally off of the 1300 region? Well, I would be wary of a rally developing at
2 Exact Link - http://nononsensetrading.com/methodology.html 3 Exact Link - http://www.youtube.com/watch?
v=hG7s13njBVM

January 29, 2012

We have some support around 1197. As I said, I'd like to see the market fall a bit more. Hopefully to that 1197 region. And in the overnight market, we have begun to move lower, which coincides with the weakness that I would like to look for congestion from which to buy a break higher. But I will need to see a bit more weakness before making a move here. Commodity Market #2 April Live Cattle (LCJ12 or for ThinkorSwim /LCJ2): Well, I had two trades for a net loss in this market last week. I was so busy in the remainder of the week, that I completely missed the move lower that eventually did come from Wednesday to Friday. And although I was thinking that I would be looking for a short trade here in this market for the rest of this upcoming week? When reviewing my data, I find that the fundamental seasonal data is quickly drawing to a close. I will still look for a short in this market. But only on Monday, possibly as late as Tuesday. But after that time, I will no longer look for a short in this market. Our seasonal 'time' is simply running out. If after the active open we continue to congest right at the current Friday close of around 128.35 to 128.65, then I would look short a break lower than 128.35 But I will have to observe the active open, wait, and then form my decision at that time. Of course, I will keep you updated as to my thoughts in regards this trade; either in an email to subscribers, or a 'update issue' of Aileron Market Balance. Commodity Market #3 March Sugar (SBH12 or for ThinkorSwim /SBH2): I am now looking at this market for a short, or to sell this market. The problem, is that we've already gotten a bit of weakness from this market. March Sugar One Hour Chart

So at this point? I will wait for a rally. I would like to see us rally up to the 24.70 region. But I'll really wait for a rally of any form. And then I will wait for what is my typical pattern. Congestion, and then a break lower by which to sell short.

Forex Market Methodology Creation

This week I am lifting my self-imposed 'kill switch' after suffering $1.13 in losses from the Micro-Forex account; and I will work once again at building a coherent methodology. To begin with, I will restore the $1.13 to the account, once again bringing it to $67.10, our yearly beginning amount. I will take the $1.13 from the portion of the portfolio dedicated to that purpose, namely; the drawdown kill-switch fund. Besides, in a few days time, the A.M.B. portfolio would receive an interest payment for the savings side-pocket fund, and therefore will cover the $1.13 we are taking from the drawdown kill-switch fund. In addition, I will only attempt a trade at any market, to message any bias twice before moving on to another trade.

January 29, 2012

And yes there is a trade to look at this week. Forex Trade #1 GBP/USD: I'm looking for weakness in the Pound, so I am looking to short this market. Active Forex trading begins around 2:00 am eastern standard time. So I will wait to evaluate the GBP/USD at that time. I'd like to see a bit of a rebound away from the current level of the 1.5702(0) region. If such a rebound occurs within the next hour or two, then I will wait for the 'rally' to continue until it exhausts itself, wait for the congestion, and then short a break out of any such congestion. But I will continue to monitor this market, and keep you updated as to my thoughts. 4 shares of JNJ (DRIP on Yield is 3.48 % )
4 shares at $62.31 on 11/28/2011 w/ $5.01 Commissions

8 shares of WM (DRIP on Yield is 4.08 % )

8 shares at $32.39 on 12/22/2011 w/ $5.01 Commissions

Cash: $3,000.61 ( 73.84 % )

-$80.00 of this cash I reserve to Dollar Cost Average PEP further in the future -$80.00 of this cash I reserve to Dollar Cost Average PG further in the future -$80.00 of this cash I reserve to Dollar Cost Average JNJ further in the future -$80.00 of this cash I reserve to Dollar Cost Average WM further in the future -This leaves $2,680.61 available for new purchases

$503.49 available from Slush Fund Dividend Investing Sister Inception to Date

Summary of the A.M.B. Model Portfolio

Note: In the beginning of this hypothetical portfolio, the share purchases of the Dividend Investing 'Sister' will be extremely small. It is my intent to demonstrate how to grow the size of these positions from 2 shares, to 300 shares using the three sisters portfolio management style. It is also understood that readers of this newsletter have a firm understanding of my 'three sisters' portfolio management system (See the Special Reference issue of Aileron Market Balance4 for an explanation of this system).

I stated last week that Procter & Gamble (PG) would pay a dividend in DRIP on January 27th, 2012. That was actually incorrect. The actual pay date of this dividend is on or about February 15th, 2012. Stock / Futures / Forex Trading Balance: $9,804.57 ( Return / Yield up +3.367 % Year to Date ) Commodity Futures Balance: $9,738.60 Return / Yield up +3.403 % Year to Date Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance. $503.49 available from Slush Fund We had two trades last week, that led to a small loss in the portfolio. I was occupied and completely missed the move lower that did come in April Live Cattle

S&P 500 Year to Date: +4.565 % AMB Total Portfolio Return Year to Date: + 2.454 % Investing Account Balance: $4,063.89 Return / Yield up +0.1735 % Year to date 4.032263 shares of PEP (DRIP on Yield is 3.23 % )
4 shares at $63.31 on 11/15/2011 w/ $5.01 Commissions 0.032263 shares DRIP at $66.95 on 1/3/2012

4 shares of PG (DRIP on Yield is 3.16 % )

4 shares at $61.94 on 11/28/2011 w/ $5.01 Commissions

4 Exact Link http://www.scribd.com/doc/73238645/Aileron-MarketBalance-Special-Reference-Issue-Portfolio-Management

January 29, 2012

Short 1 LEJ2 from 127.775 to 127.725 PROFIT - $12.96 on 1/23/2012 (including commissions of $7.04) Short 1 LEJ2 from 128.775 to 128.925 LOSS $67.04 on 1/24/2012 (including commissions of $7.04) Micro-Forex Balance: $67.10 Return / Yield -1.684 % Year to Date Lifting Kill Switch and replacing $1.13 in losses from slush fund. $503.49 available from Slush Fund As stated earlier, I am lifting the kill switch and replacing the $1.13 lost from the slush fund. We're thus back at the January 1, 2012 balance. Forex 'Sister' Account Inception to Date

As follows are the new Commodity Futures Money Management Performance Statistics

Savings Side-Pocket Account Balance: $2,027.37 Return / Yield up -0.05571 % year to date $503.49 for a Slush fund / Drawdown Kill Switch fund
Taking $1.13 to the Micro-Forex Account Percentages of that Cash:

Futures 'Sister' Account Inception to Date

$1,009.26 for a Base Savings

$813.26 of this cash reserved for 'burn rate / maneuvering' capital ( 80.58 %) $120.00 of this cash reserved for CD Ladder creation ( 11.89 % ) - One $10.00 One Year CD purchased on 11/21/2011 at 0.60% - One $10.00 One Year CD Purchase on 12/21/2011 at 0.50% - One $10.00 One Year CD Purchase on 1/21/2012 $20.00 of this cash reserved for the first side-pocket purchase ( 1.982 % ) $20.00 of this cash I reserve for the second sidepocket purchase ( 1.982 % ) $36.00 of this cash I reserve for the hedging account ( 3.567 % )

$504.62 for Emergency Savings Getting Paid Fund: $10.00

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Total Portfolio Balance: $15,896.96 - Total Inception to Date Return: +5.98 % Return / Yield up +2.454 % year to date) S&P 500 Year to Date: +4.565 % If you have any questions regarding my personal outlook, or any other comments, please feel free to contact me at dan.shy@gmail.com. I will say that if you have questions about your own trading and you want to ask for my input? Please include your most recent money management performance statistics in any email correspondence.
Until next time, stay safe trade well, and remember that loving other people doesn't cost a dime.
Note: I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. The above statements should not be construed as an investment or trading recommendation. Aileron Market Balance is a newsletter that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change. Any trades or investments that I discuss within this newsletter are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this newsletter; as larger accounts may require a different strategy as the ones presented here. This newsletter simply contains my trading and investing thoughts for the next week. I personally only enter any market after watching and reading the tape and I trade using money management principles5. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 15 years of experience in trading and investing in these markets. The Model Portfolio accounts are hypothetical accounts,with all of the inherent problems therein, which are used within this newsletter in an attempt to track the results of this newsletter, and is run for the education of other traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this newsletter are believed to be public domain. Any charts that are displayed using the ThinkorSwim platform, and other pictures were obtained through Wikipedia's public domain policy.

Exact Link - http://nononsensetrading.com/MoneyManagement.html