February 12, 2012

Dan Shy

dan.shy@gmail.com

IN FOCUS:
Equities and Dividend Investing Outlook

Dividend Investing Outlook

My comments from last week continue to hold true. The percentile cash of the dividend investing account is such that I do not wish to decrease it by making another purchase. Therefore, my real goal at this time is to increase the percentile cash of the dividend investing account. We have a goal for the A.M.B. portfolio of reaching $10,700.00 in the trading account, so that we could then redistribute profits amongst the entire portfolio. Once the percentile cash of the entire account is closer to 80%, then I will look at making another purchase, or perhaps average down on any stocks that I already own. For those folks with over 100 shares of Waste Management (WM), I do outline a possible hedge within the trading portion of this issue.

Trading Outlook

Forex Methodology Creation

Summary of A.M.B. Model Portfolio

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,973.57 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. Stock trades and option plays may last longer than one day, since the risk is lower. 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 $66.63 and is considered a micro-forex account for the purposes of the model portfolio.

Stock Trading Thoughts

Waste Management (WM): This is another 'hedge' / 'trade' scenario as I have mentioned in previous newsletters. For those that hold close to 100
1 Exact Link - http://nononsensetrading.com/methodology.html

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shares of Waste Management (WM), that they have held onto with a lower cost basis, the following idea could be attempted as a hedge in the dividend investing portion of their portfolio. If a person does not own at least 100 shares of Waste Management (WM), then this should only be taken a trade, in the trading portion of their portfolio. Both should not be taken together. This would 'weight' any portfolio too heavily towards this position. It should be either a trade, or a hedge. Not both. As you have no doubt seen, earnings brings with it volatility. Expectations meet reality. It is very often that after a large run up in price prior to earnings will meet a large sell off after earnings. Waste Management (WM) Daily Chart Waste Management (WM) One Hour Chart

I would prefer that Waste Management (WM) continue to behave within the current channel between $34.75 and the high of $35.56. Or, if it does not stay within the channel, I would prefer the market to rally up to Tuesday. This would make the option somewhat cheaper. As well, this would make parameters a little easier to develop, as I would only buy that put option if Waste Management (WM) breaks below $34.56 by Tuesday. But the market does not often give us what we prefer, and I will have to remain adaptable to changing conditions. As this is an event driven trade, I do plan on buying this option, one way or another, at least by Tuesday. Naturally, I will do my best to keep you updated.

Such is the situation that I am looking to exploit with Waste Management (WM). I will be closely observing the price prior to their earnings release on February 16th, 2012. I will be looking at purchasing a Waste Management (WM) put option. Specifically, on Tuesday, February 14th, 2012 I would look at purchase a July put option. Which strike price? Either a July 37 Put, or a July 36 Put, whichever has the greater volume. Of course, I will also keep an eye on the smaller time frames

Commodity Futures Trading Thoughts

One comment before I begin discussing commodity futures trading ideas for the week. the

If I am continuing to look at a market from one week to the next in order to continue to exploit a trend, I will mention that in the newsletter. Thus, if you see me discuss a market one week, and do not see me discuss that same market trend the next week in the next issue? Typically this means that I am not continuing to watch the market. Ok now onto my trading thoughts and ideas

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Commodity Market #1 July Sugar (SBN12 or /SBN2 in the ThinkorSwim Platform): Yes, I am already looking at the July contract month. You will note that the open interest is rising in July, so that we have some liquidity. I have stated in recent weeks that it is not unusual to see a rally develop at this time of year in Sugar. And a rally is just what has occurred March Sugar One Hour Chart an entrance pattern. That does not mean that one will not develop. So I will keep my eyes open for some sort of pattern on the July contract that I can find a short entrance on this market for the next week, and as always I will do my best to keep you updated with my own thoughts.

Commodity Market #2 March Soybeans (SH12 or /ZSH2 in the ThinkorSwim Platform): I have intoned on the Week in Review podcast2 and other updates to this newsletter that Soybeans is inside of a larger up-trend. And this is true. Seasonally, soybeans continues higher. But it is not unusual to see Soybeans to take a break around the middle of February. And as I mentioned in this weeks Week in Review podcast, all of the commodities markets were hit on Friday, and hit hard. Soybeans was no exception

as well as July Sugar Daily Chart

March Soybeans One Hour Chart

So what now? At some point in the next week, seasonal metrics tend to indicate that Sugar will have put in it's top, and could begin to move lower. I will probably be watching the ten minute chart more than anything else for this move, as the one hour chart is somewhat choppy. At the moment, the chart is a little difficult to read for

This pause can at times last a while, sometimes a week or more. So at least for right now, as of this Sunday evening I am going to stand aside of this trend, and simply observe price patterns.
2 Exact Link http://airelon.podbean.com/2012/02/11/week-in-reviewfree-trades-pepsi-earnings-portfolio-management-andforex-possibilities/

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Commodity Market #3 March Soybean Oil (BO12 or /ZLH2 in the ThinkorSwim Platform): This is an interesting situation, because it allows me to demonstrate divergence that will sometimes occur within the very same commodity sector. In other words, we have commodity sectors right? The Energy sector contains commodities such as Crude Oil, Heating Oil, and Natural Gas. Within the Grains sector, we also have the Soybean complex. It is of interest to note that sometimes, throughout the year, you will note that prices will diverge from one another, within the very same sector. For example, I just discussed Soybeans. Soybeans typically takes a breather from now, until possibly the end of the month of February. That's what I want to observe, and see if this occurs this year. However, typically, on a seasonal average, the Soybean Oil market does not take a 'breather'. Usually, the Soybean Oil market continues right on higher, and shows greater strength than does Soybeans, or even Soybean Meal, all of which are in the same complex. This is known as sector divergences. So, as I have said, March, May and July Soybean Oil contracts continue strong throughout the month of February. March Soybean Oil One Hour Chart At the current time, I would need to see what becomes of that rally. Because situations such as we saw on Friday are exactly what I'm looking to take advantage of within the Soybean Oil market in the month of February. Namely, a rally, a retracement back to the one hour moving averages mentioned in my methodology series3 for the one hour chart, and then a break up out of that congestion that I would be looking to buy.

Commodity Market #4 March Cotton (CTH12 or /CTH2 on the ThinkorSwim Platform): What to say about the Cotton market? Get long. Seriously, this is a beautiful pattern. March Cotton Daily Chart

and March Cotton One Hour Chart

As you can see, on Friday, we already began a rally. Hopefully, based on comments last week, some were able to take advantage of this, and end before trading ceased. But I have an advantage in that I understand seasonal and sector divergences, and therefore I favor the Soybean Oil market, over the Soybean market.

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

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The market has consolidated since late Thursday, and has not broken through the 90 region. As long as that region holds, I would look to buy strength in this market. The seasonal buy pressure on the Cotton market is very strong this time of year. Of course, as I have said, that 90 region must hold, or a new base of support would have to form if 90 was violated. But if 90 holds, then buying any strength (excepting a gap up open) is what I'll be looking to do here. against the larger trend on the larger timeframes, I will not attempt a trade more than 3 times, if each attempt results in a loss. I can begin trading Sunday night / Monday morning at 1:30 am Mexico Central Time. I will plot the S Swing Script from the one hour chart. If the trend is down, and it agrees with Seasonality, I will only take sell signals. If the trend is up, and it agrees with seasonality, I will only take buy signals. I end trading Friday around 3:30 pm Mexico Central Time In an attempt to accentuate the risk / reward theory behind this approach, I will be using my own Kellys S4 money management strategy, and this will affect the number of units I place in the trade, but not the number of pips I look for within each trade.

Forex Market Methodology Creation

The experiment that I mentioned last week has been running nicely. Some data has been gleaned that I already plan to put to work, and incorporate within the methodology. To recap, this is what we have thus far : Begin all trading with a position size of 70 units for the Micro account. This translates of a 0.07 Micro Lot. When the position is initiated, I will risk 42.4 pips. Always. This will not change for any foreseeable reasons. When the position is initiated, I will automatically set my profit target 63.6 pips from my entrance (a 1 to 1.5 risk to reward ratio). Always. This will not change for any foreseeable reasons. Rather than looking to lock in the position when it goes in my favor by 50.8 pips, I will use a trailing stop / loss order of 50 pips. This will result in I have also placed a parabolic SAR on the smallest time frame for the charts. Once the trade has begun, I am investigating the possibility of using this as a means of possibly managing the trade, and guiding my stop / loss order. I am very careful with this however, since I do not want to skew the overall methodology which is heavily dependent upon the risk / reward ratio. When investigating any move, regardless of whether or not it is seasonally typical, if it is

I also have setup a specific Forex monitor system. In the ThinkorSwim, I set this up under the Charts tab, on the Charts button. I trade commodity Futures on the Trade tab, on the Active Trader button, as I describe in the video that discusses my platform setup5. I use a four box setup for the Forex chart. But instead of one box being dedicated to the Bid x Ask / Time and Sales screen? I dedicate the upper left hand box to the Currency Futures of whatever forex market that I am trading. So the box setup, goes a little something like this

4 Exact Link - http://www.youtube.com/watch?v=zmNv9Cqu_Q&feature=BFa&list=PLD41865A5A41F4283&lf

5 Exact Link - http://www.youtube.com/watch? list=PL61DCBF4BF4E93A0F&feature=player_embedd ed&v=Yx7mjKfQiSs

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Or, as it would appear on the platform, like this short of 70 units, with a 42.4 pip stop loss, and a 63.6 pip profit target, with a trailing stop of 50.

And that's where I am at at this point, in developing the Forex methodology. So what is the next trade I'm looking at? GBP/USD: Yes, I'm still looking at the GBP/USD trade, and I'm still looking at this to the short side. What parameters is this methodology telling me to look at? Well, the GBP/USD will open up on Sunday evening. I will be looking specifically at this market at 19:00 hours, or 7:00 pm EST for a possible short. That's a little early than I would like. I like to trade closer to Monday. But that's what the methodology is telling me at this time. This tends to agree with what the chart is telling us. We are in the midst of a rebound, but we are making lower lows, and not higher highs. So I will be looking to see if we can get a typical 'Dan' pattern. A rally up, and then when the market stalls, some sort of congestion, and then a break to the down side. S Swing is specifically telling me to keep an eye at the 19:00 pm or 7:00 pm time frame. It's a little early for my methodology, but I will keep an eye on this market at that time. It is important to keep in mind that if we do not make a higher high in this market, and we break below 1.5725(8), then we will be making lower lows, and the trend will have changed in the short term, which agrees with the seasonal metrics. When I short any rally in the GBP/USD, it would be a

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 Balance 6 for an explanation of this system).

S&P 500 Year to Date: +6.655 % AMB Total Portfolio Return Year to Date: + 3.61 % Investing Account Balance: $ 4,054.07 Return / Yield 0.06853 % Year to date 4.032263 shares of PEP (DRIP on Yield is 3.25 % )
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 3.29 % )

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

4 shares of JNJ (DRIP on Yield is 3.53 % )

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

8 shares of WM (DRIP on Yield is 4.03 % )

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

Cash: $3,000.61 ( 74.01 % )

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

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

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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%)

As follows are the new Commodity Futures and Stock Money Management Performance Statistics

$503.49 available from Slush Fund (16.78 % ) Dividend Investing Sister Inception to Date

Stock / Futures / Forex Trading Balance: $10,049.25 ( Return / Yield up +5.851 % Year to Date ) Commodity Futures Balance: $9,973.57 Return / Yield up +5.947 % Year to Date Next Re-Distribution Goal: $10,700.00 Original 3% risk tolerance gives us approximately $282.54 for my drawdown tolerance. $503.49 available from Slush Fund We had one trade last week, that led to a gain for the trading 'sister' accounts, that I emailed everyone throughout ...
Long 1 August FCX August 45 Call from 5.35 on 2/6/2012 Exit 1 August FCX August 45 Call at 5.50 on 2/8/2012 PROFIT - $9.05 on 2/8/2012 (including commissions of $5.95)

Futures 'Sister' Account Inception to Date

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Micro-Forex Balance: $66.63 Return / Yield -2.345 % Year to Date $503.49 available from Slush Fund As mentioned in previous newsletters, I am taking a short Forex break as I run numbers, and experiment with the methodology I am creating. I expect to be back to live trading by next Sunday. Forex 'Sister' Account Inception to Date Savings Side-Pocket Account Balance: $2,029.37 Return / Yield up +0.04289 % Year to Date $504.84 for a Slush fund / Drawdown Kill Switch fund $1,009.69 for a Base Savings
Percentages of that Cash:

$813.69 of this cash reserved for 'burn rate / maneuvering' capital ( 80.59 %) $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% $20.00 of this cash reserved for the first side-pocket purchase ( 1.981 % ) $20.00 of this cash I reserve for the second sidepocket purchase ( 1.981 % ) $36.00 of this cash I reserve for the hedging account ( 3.565 % )

$504.84 for Emergency Savings Getting Paid Fund: $10.00 Total Portfolio Balance: $16,132.69 - Total Inception to Date Return: +7.551 % Return / Yield up +3.61 % year to date) S&P 500 Year to Date: +6.655 %

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

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money management principles7. 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 16 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