January 15, 2012

Dan Shy

dan.shy@gmail.com

IN FOCUS:
How to Hedge?

Equities and Dividend Investing Outlook

How to Hedge?
As I stated in Aileron Market Balance Issue 10.5, I would continue to monitor the equities markets against a downturn. But then again, I am always ready to hedge against a market downturn. Well timed hedges allow us to better generate alpha against our chosen benchmark, as the blow from downturns are greatly softened, if not negated. Providing of course, that it is well timed. Of course, time has begun to pass since I first mentioned this possibility a few weeks ago. Therefore, I would approach the mechanics of any such hedge differently today, than I would then. I had been looking at the purchase of a April 130 SPY Put if the S&P 500 broke below 1247. I would still hedge with SPY puts. But at the present time, for larger accounts, I'd probably look to Hedge with the June SPY 130 Puts. I would probably prefer to go with the 131, or even the 132 Puts, but at the present time, the volume with those options is much, much too low. The June SPY 130 Puts offers us much higher volume and liquidity. And what of the parameters to put on such a hedge? Well, at the time of this writing, I am closely observing the E-mini S&P 500 Futures. We opened a little bit lower than Friday's close, but are climbing since that gap lower. I am watching the resistance ceiling area of 1297, and the support base region of 1280 on the actual S&P 500 Index. If we do not make a higher high, but we make a lower low? This could be indication of a trend change and with a break below 1280, I would be looking to put on a hedge for accounts, as I have previously mentioned, larger than A.M.B.'s model portfolio. At the present time, A.M.B.'s account is still too small to put on such a hedge.

Trading Outlook

Summary of A.M.B. Model Portfolio

Equities and Investing Outlook

You guessed it. With the above comments, I am still wary against a market downturn. Seasonal metrics and analysis states that any such downturn could typically last until the end of February.

January 15, 2012

In addition to simply watching the charts, and the print of the mark? I also have to watch the fundamentals. And as I often repeated when I ran my daily blog, this means listening to conference calls, reading 10-K's, and the like. So as earnings season is approaching, I thought I would share my Calendar. A list of the dates of conference calls of the different companies that I track. The links takes you to the individual companies page where you can find the conference call. If I have not included the link, it is because the web page for that company is currently down. Regardless, you only need to look on the investor relations pages for each one of these companies, and look for presentations. On such pages, you can also find such information as 10-K's, which are invaluable reads. JP Morgan (JPM) Conference Call on January 13, 2012. Dividend Pay Date on 01/31/2012 Costco (COST) Conference Call on December 8, 2011. Dividend Pay Date on 11/25/2011 General Mills (GIS) Conference Call on December 20, 2011. Dividend Pay Date on 02/01/2012 TD Ameritrade (AMTD) Conference Call on January 17, 2012. Dividend Pay Date on 11/15/2011 Capital One (COF) Conference Call on January 19, 2012. Dividend Pay Date on 12/02/2011 Johnson & Johnson (JNJ) Conference Call on January 24, 2012. Dividend Pay Date on 12/13/2011 Abbott Labs (ABT) Conference Call on 1/25/2012 on January 25, 2012. Dividend Pay Date on 02/15/2012 ADP (ADP) Conference Call on January 25, 2012. Dividend Pay Date on 01/01/2012 Procter & Gamble (PG) Conference Call on January 27, 2012. Dividend Pay Date on 02/15/2012 Pfizer (PFE) Conference Call on January 31, 2012. Dividend Pay Date on 03/06/2012 Coca-Cola (KO) Conference Call on February 7, 2012. Dividend Pay Date 12/16/2011 Pepsi Cola (PEP) Conference Call on February 9, 2012. Dividend Pay Date 01/03/2012 ING Direct ADR (ING) Conference Call on February 9, 2012 Waste Management (WM) Conference Call on February 16, 2012. Dividend Pay Date 12/16/2011 Frontline Ltd (FRO) Conference Call on February 29, 2012. And if you miss any of those calls live, remember that each of these companies usually post a recording of the conference calls on their website a few hours after the conference call is complete.

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,631.72 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 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. The Forex account has $65.97 and is considered a micro-forex account for the purposes of the model portfolio.

Stock Trading Thoughts

So as I am still looking at a hedge for larger dividend accounts, so yes I am still looking at this as a trade. How do I determine the size of this trade? Well what would we refer to when trying to make a determination for the sake of our portfolio? That's right our money management numbers, which you can find in the summary of the portfolio at the end of this issue. Those money management numbers tell us that the largest loss that we have endured in the account to date is 1.1113% of the account. When I consider this number, then I would want a stop / loss on such a trade of around 0.90, or $90.00.
1 Exact Link http://nononsensetrading.com/methodology.html

January 15, 2012

Stock Trade #1 SPY (June Puts): June 130 SPY Put if the S&P 500 Index Does not break higher than 1297 and Breaks below 1275 We have pulled back nicely on the daily chart, and as you can see, we have a bit of support right below the 23 cent region. Sugar One Hour Chart

that the trade could be initiated, with a stop / loss of around 0.90 or $90.00. My comments on the tail risk2 present in both a hedge and a trade in one portfolio remains from previous newsletter issues.

Commodity Futures Trading Thoughts

Commodity Market #1 March Sugar (SBH12 or for ThinkorSwim /SBH2): One of the subscribers to this newsletter had already discovered this trade by looking through the fundamental data that I like to review. And I agree with him wholeheartedly. I am looking to trade the long side of the Sugar market. Remember that from my methodology series, I am always looking at three time frames simultaneously when examining commodity futures. The daily chart, the one Hour chart, and the ten minute chart. Sugar Daily Chart So at this point, I would like to see a pullback back to the base pair of moving averages that I use. Somewhere near the 23.51 region. At that point, I would look for congestion, and then a break up out of this congestion, of course with a good tape, and then buy such breakouts. We have begun to see signs that the Sugar market is waking up, and beginning to move away from this support on the one hour chart. Sugar Ten Minute Chart

2 Exactly Link - http://www.youtube.com/watch? v=hG7s13njBVM

January 15, 2012

Forex Market Methodology Creation

As you can see, I've decided to rename this section to something more accurate. 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. I've just found over the years, that when you have a period of drawdown in any given account a small break can do wonders for future profitability.

-$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

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).

Stock / Futures / Forex Trading Balance: $9,697.69 ( Return / Yield up +2.24 % Year to Date ) Commodity Futures Balance: $9,631.72 Return / Yield up +2.268 % Year to Date Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance. $504.62 available from Slush Fund We had a quite a few commodity futures trades last week that would translate into the AMB account as follows Long 1 YIH2 from 28.835 to 28.844 PROFIT $1.96 on 1/8/2012 (including commissions of $7.04) Long 1 YIH2 from 28.671 to 28.711 PROFIT $32.96 on 1/8/2012 (including commissions of $7.04) Long 1 YIH2 from 28.760 to 28.770 PROFIT $2.96 on 1/8/2012 (including commissions of $7.04) Long 1 YIH2 from 28.652 to 28.550 LOSS

As follows is the state and balances of the Model Portfolio after our investing and trading efforts last week. S&P 500 Year to Date: +2.401 % AMB Total Portfolio Return to Date: +1.332 % Investing Account Balance: $4,051.77 Return / Yield up -0.1252 % 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 3.19 % )

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

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

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

Cash: $3,000.61 ( 74.056 % )

-$80.00 of this cash I reserve to Dollar Cost Average PEP further in the future

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

January 15, 2012

$107.04 on 1/8/2012 (including commissions of $7.04) Long 1 YIH2 from 28.593 to 28.671 PROFIT $70.96 on 1/8/2012 (including commissions of $7.04) Long 1 YIH2 from 28.676 to 28.695 PROFIT $11.96 on 1/9/2012 (including commissions of $7.04) Long 1 YIH2 from 28.99 to 29.057 PROFIT - $59.95 on 1/9/2012 (including commissions of $7.04) Long 1 YIH2 from 28.83 to 28.964 PROFIT - $126.96 on 1/9/2012 (including commissions of $7.04) Long 1 LEG2 from 1.20375 to 1.20425 PROFIT - $12.96 on 1/9/2012 (including commissions of $7.04) Futures 'Sister' Account Inception to Date

Micro-Forex Balance: $65.97 Return / Yield -1.684 % Year to Date Instituting Kill Switch $504.62 available from Slush Fund My Forex trading, was much less fortunate last week. The Forex trades that I had last week were as follows
Long 260 USD/CAD from 1.0278(8) on 1/9/2012

As follows are the new Commodity Futures Money Management Performance Statistics

Exited 208 @ 1.0285(6) on 1/9/2012 for 6.8 pips PROFIT -$0.14

Exited 52 @ 1.0281(6) on 1/9/2012 for 2.8 pips PROFIT - $0.01 Long 260 USD/CAD from 1.0275(4) on 1/9/2012

Exited 208 @ 1.0267(8) on 1/9/2012 for 7.6 pips LOSS - $0.14 Exited 52 @ 1.0265(6) on 1/9/2012 for 9.8 pips LOSS - $0.01

Long 260 USD/CAD from 1.0266(6) on 1/9/2012

Exited 208 @ 1.0257(6) on 1/9/2012 for 9 pips LOSS - $0.18 Exited 52 @ 1.0253(5) on 1/9/2012 for 13.1 pips LOSS - $0.07

Long 260 USD/CAD from 1.0242(2) on 1/9/2012

Exited 208 @ 1.0235(2) on 1/9/2012 for 7 pips LOSS - $0.14

January 15, 2012

Exited 52 @ 1.0224(7) on 1/9/2012 for 17.5 pips LOSS - $0.09

Forex 'Sister' Account Inception to Date

Long 120 USD/CAD from 1.0218(8) on 1/9/2012

Exited 120 @ 1.0205(0) on 1/9/2012 for 13.8 pips LOSS - $0.1623

Long 120 USD/CAD from 1.0181(5) on 1/10/2012

Exited 120 @ 1.0152(0) on 1/10/2012 for 29.5 pips LOSS - $0.1623

Long 120 USD/CAD from 1.0171(5) on 1/10/2012

Exited 120 @ 1.0150(7) on 1/11/2012 for 20. pips LOSS - $0.2472

As follows are the new Forex Money Management Performance Statistics ...

Savings Side-Pocket Account Balance: $2,028.50 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% $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

January 15, 2012

Savings Side-Pocket Account Inception to Date

Remember that on the 21st of this month, it will be considered that this account bought another one year CD for $10.00 for the continuing construction of the CD Ladder comprised of one year CD's. Total Portfolio Balance: $15,777.96 - Total Inception to Date Return: +5.186 % . Return / Yield up +1.332 % year to date) S&P 500 Year to Date: +2.639 % 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