April 9, 2012

Dan Shy

dan.shy@gmail.com

IN FOCUS:
Trading Outlook

Summary of A.M.B. Model Portfolio

This week?

This week we are going to jump right into trading thoughts. I stated last week that I was personally going to focus on investing and trading in the second quarter of 2012. For the model portfolio of Aileron Market Balance, we are attempting to reach the goal of $10,700.00 so that the Dividend Investing Sister account can receive more capital. Though it is impossible to force trades (at least successfully), we can focus on trading opportunities and take advantage of them in a more focused manner. So let's do that

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $10,197.93 in the Commodity Futures and Stock 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 series1, as the 'trading sister' reaches $30,000 I will graduate the account into 'swing-trading' and demonstrate how I would go about doing this. Stock trades may last more than one day. The Forex account has $66.83 and is considered a micro-forex account for the purposes of the model portfolio.

Commodity Futures Trading Thoughts

Commodity Market #1 May Crude Oil (CLK12 or /CLK2 in ThinkorSwim. USO for the imperfect ETF ): I've been long on the Crude Oil market for a couple of weeks now. Although, as we have already specified within the pages of this newsletter and on the forums, a few profitable trades could have been 'wrangled' out of the Crude Oil market, the market overall has been weaker
1 Exact Link - http://nononsensetrading.com/methodology.html

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and moved lower ... May Crude Oil Daily Chart to be said is that the A.M.B. portfolio cannot trade the outright futures market. Why? Well, sometimes you'll hear me say things (on podcasts and such) like The market is too 'big' for a smaller account. What I mean, is that when you begin to look at the average range on a ten minute chart, you quickly begin to discover that $650.00 moves can happen within the span of about 3 minutes. So although the A.M.B. portfolio could handle the margin for the copper futures market, it really cannot handle the range of the moves. Trying to find a tight entrance where your stop / loss order is only $100.00 away becomes exceedingly difficult, if not impossible. Even as I write this lower in the early morning hours, the Crude Market is pressing lower. And yes, my bias is still long (buying) this market. We still have a nice 'dip' that we can try to buy this market on, if the opportunity presents itself. So what would be that 'opportunity'? As of 5:45 am Monday morning, a nice base of support had developed in the $101.20 region. In the short term (10 minute chart) that level of support needs to hold. If we move lower than that region of support, then we need to hold off on the trade. But if $101.20 holds, then at this point, I'll be waiting for some sort of 'channel' to develop, that I can buy a break 'up' to the upside. The call options I'm looking at this week are the July 38 USO Call Options. I will continue to monitor this market, and detail my thoughts in the subscriber area of the No Nonsense Trading forums. Futures Market #2 May Copper (HGK12 or /HGK2 in ThinkorSwim. Possibly the FCX as a loose correlation for an account the size of A.M.B.): The first thing that needs So it is my belief that an account really shouldn't be trading Copper Futures outright until the account is approximately $25,000.00 Just another example of the challenges of trading a smaller account. Now all of that being said my bias in this market is 'long', or to buy Copper with the right entrance and parameters. What parameters? Well, as of 5:03 am est this Monday morning, the Copper futures market needs to stop falling on the 10 minute chart, and the $3.73 region of support needs to hold firm. If it does not, then the trade can be passed up. If $3.73 does hold as a region of support, then with congestion on the 10 minute and one minute chart, and if we then begin to break up and higher, perhaps this market could be bought for accounts greater than $25,000.00. So what about accounts under $25,000.00? Traders (including myself) have used FCX as a possible correlation in the past. It must be admitted that this correlation is more 'loose' that it once was. There was a time when Copper and FCX moved almost completely in tandum, 'lock in step' as it were. But lately, this relationship has 'loosened'. There is a point of synchronicity, in that FCX earnings are approaching, and at times, you can encounter a

April 9, 2012
price 'buildup' appreciation in a stock before the actual earnings day. This has occurred more than once for FCX as a company. So, for A.M.B. what to do? Well, I would want to combine both factors and parameters before buying an FCX Call option. I would want to see Copper hold it's current base of support firm, begin to congest, and then break higher. At the time of this writing, that is not occurring. But if it begins to occur, and FCX can hold the $37.00 region and looks to begin to march higher? Then I might purchase an FCX August 37 Call option for A.M.B.'s trading account. We'll just have to see how things will play out, and I will detail my thoughts, as always, at the forums ... Futures Market #3 July Corn (CN12 or /ZCN2 in ThinkorSwim): My bias in the market is 'short'. The predominant time frame that I'm noticing for this possibility, is the daily chart. There seems to be some firm support around the 6.45 region. When it comes to the grain markets (I know I'm repeating myself here, but this is important) I always wait a few minutes after the 'active open' before trading it. This means waiting until the 10:30 am open , and then waiting a few minutes after that, since the opens in the grain markets can be exceedingly volatile. Basically, what I'm looking for, is an entrance where I can get short with a break below that 6.45 region. I'll keep my eyes peeled, and my 'fingers typing' at the forums if I find that opportunity.

Forex Market Methodology Creation

We call this section methodology creation. I have often repeated the reason for this. I do not consider myself a 'professional' Forex trader. I need time and experience before I can begin to say that I even have a 'handle' on trading Forex markets. However I do believe I am close to that point. I've sort of adopted the EUR/USD as my chosen 'go to' market. I'll continue to look for other trades but I like using this market as a 'standard' by which to work on perfecting my methodology. EUR/USD: At the beginning of this week, as of this Monday morning I am preferential towards a 'long', or buying the EUR/USD. The main reason for this is the firm support I see on the Daily chart around the 1.3035(0) region. I'll continue to watch it. Especially if we begin to fall on the 15 minute chart from 6:32 am forward. I'll then begin to watch that base of support at 1.3035(0), and see if I can find some sort of entrance to the long side ...

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 Balance2 for an explanation of this system).

S&P 500 Year to Date: +11.06 % AMB Total Portfolio Return Year to Date: + 5.239 % It should be noted that the account graphs displayed in this issue no longer show 'inception to date' graphs, but 'year to date' graphs. Investing Account Balance: $4,088.21
2 Exact Link http://www.scribd.com/doc/73238645/Aileron-MarketBalance-Special-Reference-Issue-Portfolio-Management

April 9, 2012
Return / Yield up +0.773 % Year to date 4.063508 shares of PEP (DRIP on Yield is 3.14 % )
4 shares at $63.31 on 11/15/2011 w/ $5.01 Commissions 0.032263 shares DRIP at $66.95 on 1/3/2012 0.032145 shares DRIP at $66.25 on 3/30/2012

Long 1 USO July 38 Call from 3.10 to 3.25 PROFIT - $9.05 on 4/2/2012 (after commissions of $5.95)

Commodity Futures Balance: $10,197.93 Return / Yield up + 8.28 % Year to Date Next Re-Distribution Goal: $10,700.00 Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance. $505.14 available from Slush Fund My current money management stats

4.032392 shares of PG (DRIP on Yield is 3.12 % )

4 shares at $61.94 on 11/28/2011 w/ $5.01 Commissions 0.32392 shares DRIP at $64.83 on 2/15/2012

4.035 shares of JNJ (DRIP on Yield is 3.49 %)

4 shares at $62.31 on 11/28/2011 w/ $5.01 Commissions 0.035 shares at $65.14 on 3/13/2012

8.081305 shares of WM (DRIP on Yield is 4.04 % )

8 shares at $32.39 on 12/22/2011 w/ $5.01 Commissions 0.081305 shares DRIP at $34.93 on 3/23/2012

Cash: $3,000.61 ( 73.4 % )

Percentages of that Cash - $2,680.61 of this cash I reserve for 'maneuvering' capital / hedging / new purchases ( 89.34 % ) -$80.00 of this cash I reserve to Dollar Cost Average PEP further in the future ( 2.66 % ) -$80.00 of this cash I reserve to Dollar Cost Average PG further in the future ( 2.66 % ) -$80.00 of this cash I reserve to Dollar Cost Average JNJ further in the future ( 2.66 % ) -$80.00 of this cash I reserve to Dollar Cost Average WM further in the future ( 2.66 % )

$505.14 ( 12.36 % of this account ) available from Slush Fund Dividend Investing Sister Year to Date

Futures 'Sister' Account Year to Date

Stock / Futures / Forex Trading Balance: $10,264.76 ( Return / Yield up + 8.206 % Year to Date ) Our Commodity Futures trade last week, was via the USO ETF, since our account cannot yet handle the full Oil contract

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We had a couple of Micro-Forex trades Forex 'Sister' Account Year to Date

Short 170 EUR/USD @ 1.3328(2) on 4/3/2012 Exit 170 @ 1.3338(7) LOSS of 10.5 Pips $0.1785 Long 170 EUR/USD @ 1.3132(3) on 4/4/2012 Exit 153 @ 1.3141(7) PROFIT of 9.4 Pips - $0.1438 and Exit 17 @ 1.3135(1) PROFIT of 2.5 Pips $0.0048

Micro-Forex Balance: $66.83 Return / Yield -2.052 % Year to Date $505.14 available from Slush Fund Micro-Forex money management stats Savings Side-Pocket Account Balance: $2,033.37 Return / Yield up +0.2959 % Year to Date $505.14 for a Slush fund / Drawdown Kill Switch fund $1,010.29 for a Base Savings
Percentages of that Cash:

$814.29 of this cash reserved for 'burn rate / maneuvering' capital ( 80.60 % ) $120.00 of this cash reserved for CD Ladder creation ( 11.88 % ) - 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 at 0.50% - One $10.00 One Year CD Purchase on 2/21/2012 at 0.50% - One $10.00 One Year CD Purchase on 3/21/2012 at 0.50% $20.00 of this cash reserved for the first side-pocket purchase ( 1.98 % ) $20.00 of this cash I reserve for the second sidepocket purchase ( 1.98 % ) $36.00 of this cash I reserve for the hedging account ( 3.563 % )

$505.14 for Emergency Savings Getting Paid Fund: $12.80

Total Portfolio Balance: $16,386.34 - Total Inception to Date Return: +9.242 % Return / Yield up + 5.239 % year to date) S&P 500 Year to Date: +11.06 %

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If you have any questions regarding my personal outlook, or any other comments, please feel free to contact me at dan.shy@gmail.com or aileronmarketbalance@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. 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. 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. 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 principles3. 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