January 22, 2012

Dan Shy

dan.shy@gmail.com

IN FOCUS:
January 2012

Equities and Dividend Investing Outlook

This upcoming week brings us the last full trading week of

January, 2012. I often state that 'prediction' is impossible, and it is rather advantageous to try to determine 'where we are' with as much accuracy as possible. Indeed, this feat alone can be rather problematic given the complex nature of the Capital Markets. But let us try to determine 'where we are', after this last trading month. As I noted in the Week in Review podcast 1, we have moved in a 'contraseasonal' manner in the equities market. When the market does not behave according to seasonal norms, this information is as useful as when it does behave according to typical seasonal pressures. It alerts us that there is stimulus to the market that is far outside even typical market 'noise'. Of course, this is due to the problems in the Eurozone. Yet despite those problems in the Eurozone, equities are moving higher, not lower, and this in the face of a higher than usual U.S. Dollar. This is point one. The commodity markets are in flux and rather choppy to ever so slightly down DBC Commodity Index ETF One Hour Chart

Trading Outlook

Summary of A.M.B. Model Portfolio

1 Exact Link - http://www.nononsensetrading.com/weeklypodcast.html

January 22, 2012

So what of this 'choppiness'? Well, these moves within the United States commodity futures markets have been behaving according to seasonal norms. As we have seen, the metals markets certainly have. As has the Sugar market. And it must be noted that the grain markets, for the most part, are moving in a characteristic manner for this time of year. This is point two. The U.S. credit markets remain at all time lows in terms of interest rates. U.S. Government Bond Curve We've continued higher, and we can continue to enjoy that yield. 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. What about new dividend purchases for A.M.B.? There are stocks that I would like to pick up for the portfolio of this newsletter. Coca-Cola (KO) and Abbott Labs (ABT) for example. But I have to consider the 'health' of the portfolio. At this point we are 73.81 % cash in the dividend investing portfolio. Dividend Investing 'Sister' Account A.M.B. - Percent Cash

This is point three. Then, there is the employment, capital and credit statistics of the consumer to consider; as well as the private commercial statistics. At this point? I am remain bullish on the the United States economy as I was at the end of last month. The employment numbers remain a sticking point, and discouraging data points can be gleaned from them. Yet overall, the above picture, at least to me, indicates a gradual, tepid recovery. But a recovery nonetheless. In the current economic environment, this is about as low on cash as I wish to get. There are economic environments in which I would be willing to go to 60% cash, or even 50% cash. But we are not in such an environment at this time. And I will not risk the health of the portfolio, simply because I want to buy Coca-Cola (KO) at these levels. Knowing the economic environment that an investor finds himself is exceedingly important, so that one does not become low on cash, and cannot protect his portfolio in the case of unknown future events. By maintaining a healthy portion of cash now, I will be prepared in the event of interest rate increases, or perhaps if I need to hedge. Or perhaps, in the event a stock heads lower, and I need to average down to increase the accounts performance. So how do we add cash to the dividend investing

Equities and Outlook:

But I don't.

Dividend

Investing

So. We have continued higher. I would like to say that this means that I 'believe' in this rally. But as I pointed out in the podcast for the Week in Review, my personal belief really doesn't matter.

January 22, 2012

account, and thus increase our percentage cash so as to be able to make further purchases? Why by trading of course! At the present time I would like to see that seasonal tendencies continue to 'prove true' with the Soybeans market. However I would not take this as a trade. Why? Because before I take the trade, I want to see the market 'behave' according to the 'edge' or 'implied probability' that I will be using when I do take the trade. So at this point I would like to see March Soybeans market fall a bit further down, and will evaluate it then if such a circumstance comes to pass. Again, I am not looking to trade this market at the present time. And of course, I will detail my thoughts as they continue to evolve, here in Aileron Market Balance. Commodity Market #2 March Sugar (SBH12 or for ThinkorSwim /SBH2): I had a profitable trade last week in March Sugar, in what turned out to be a very powerful move. I hope some subscribers were able to take advantage of more of the move than I was in a position to trade. At the present time, March Sugar is rather extended off of the one hour chart's exponential moving averages March Sugar One Hour Chart

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,792.68 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.

Commodity Futures Trading Thoughts

Commodity Market #1 March Soybeans (SH12 or for ThinkorSwim /ZSH2): This is a market that I would like to begin to 'stalk'. According to the data that I look to for a fundamental edge in this market, I would like to begin to 'stalk' for a 'long' or buying opportunity. I'm a little 'in front' of the move by mentioning it now. The seasonal move does not typically occur until the beginning of next week. However, I wished to demonstrate how I begin to look for a 'trading setup'. March Soybeans One Hour Chart

2 Exact Link http://nononsensetrading.com/methodology.html

January 22, 2012

I would not trade this market to the long side again. This seasonal move is coming to an end, and in fact, may possibly reverse. At this point, I will watch and wait. But for now, I'm going to leave Sugar alone. Commodity Market #3 April Live Cattle (LCG12 or for ThinkorSwim /SBH2): A brief while ago we were looking to go long in Live Cattle. Now I'm looking at this market for a short, or to sell April Live Cattle. We have rallied nicely in the last week or so. On the one hour chart, we've begun to demonstrate a bit of weakness on the last day, on what could end up becoming a meanreversion trade. In other words, a short as we ride the market back to the 'mean average' of prices on the moving averages April Live Cattle One Hour Chart develop, congest, and then short breaks to the downside. Remember I do not trade the active open in this market. I will wait a few minutes after the market opens up, and evaluate it at that time. The open in this market can be much too volatile, in my opinion, to attempt to trade.

Forex Market Methodology Creation

There are currently no Forex trades that I see according to the implied probability that I use. This coincides well with the fact that I would like to take a break from Forex trading for a week or two.

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 Balance3 for an explanation of this system).

As follows, is how the portfolio is doing after the last week S&P 500 Year to Date: +4.49 % AMB Total Portfolio Return Year to Date: + 2.454 % But I would need to build a parameter before I take this trade. What trading parameters? At this point, I will want the market to rally a little bit, but not take out the highest high that we developed on January 20th. As long as we do not take out the high of January 20 th, and then we begin to head lower? I would look to short this market. If we take out the highest high of January 20th, then I would simply wait for a new resistance ceiling to Investing Account Balance: $4,065.47 Return / Yield up +0.2125 % 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

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

January 22, 2012

4 shares of PG (DRIP on Yield is 3.19 % )
4 shares at $61.94 on 11/28/2011 w/ $5.01 Commissions

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

4 shares at $62.31 on 11/28/2011 w/ $5.01 Commissions

Long 1 SBH2 from 23.80 to 23.95 PROFIT - $160.96 on 1/17/2012 (including commissions of $7.04)

8 shares of WM (DRIP on Yield is 4.25 % )

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

As follows are the new Commodity Futures Money Management Performance Statistics

Cash: $3,000.61 ( 74.056 % )

-$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

$504.62 available from Slush Fund Dividend Investing Sister Inception to Date

Remember that the dividend will be paid on Procter & Gamble (PG) in DRIP on January 27th, 2012. Stock / Futures / Forex Trading Balance: $9,858.65 ( Return / Yield up +3.937 % Year to Date ) Commodity Futures Balance: $9,792.68 Return / Yield up +3.997 % Year to Date Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance. $504.62 available from Slush Fund We had only one commodity futures trades last week that would translate into the AMB account as follows:

Futures 'Sister' Account Inception to Date

Micro-Forex Balance: $65.97

January 22, 2012

Return / Yield -1.684 % Year to Date Instituting Kill Switch $504.62 available from Slush Fund As stated last week, I am taking a bit of a forex trading break for the micro account. Return / Yield up +0.0 % year to date $504.62 for a Slush fund / Drawdown Kill Switch fund $1,009.26 for a Base Savings
Percentages of that Cash:

$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 Savings Side-Pocket Account Inception to Date

Forex 'Sister' Account Inception to Date

As I pointed out last week, remember that on the 21 st, or yesterday, it was considered that this account bought another one year $10.00 CD for the continuing construction of the CD Ladder comprised of one year CD's. Total Portfolio Balance: $15,952.62 - Total Inception to Date Return: +6.351 % Return / Yield up +2.454 % year to date) S&P 500 Year to Date: +4.49 % Savings Side-Pocket Account Balance: $2,028.50

January 22, 2012

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 principles4. 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