December 18, 2011

Dan Shy

dan.shy@gmail.com

IN FOCUS:
Dividend Investing Outlook

Trading Thoughts

As I stated a few weeks ago, 2011 is obviously drawing to a close, and

with it, I will be looking to 'close up shop' for the year. As I stated then, upcoming holiday observances will mean abbreviated market sessions. Volume begins to decrease as investors and traders take time off and stop trading for the remainder of the year. Thus, this will probably be my last week for trading in 2011. That is not to say, that there is not a lot to do before the end of the year. Investing and trading is not simply about buying, or selling. It's also about proper management of the portfolio. In coming weeks, I will have more to say on that particular topic. As well, I plan on having an issue that is solely dedicated to looking forward to the year of 2012. For this week however, I wanted to publish a brief newsletter, dedicated to my final investing and trading market thoughts for 2011.

Summary of Hypothetical Model Portfolio

Dividend Investing Outlook

To begin with, this was a pretty good week for dividends. Johnson & Johnson (JNJ) and several other companies that I personally own paid out dividends this week. Unfortunately, Aileron Market Balance did not buy Johnson & Johnson (JNJ) in time to qualify for dividends for this particular quarter. When a company pays out a dividend, there is something called an ex-dividend date. There are a few more details that explain the concept but to state

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it simply, you must hold the stock by a certain date in order to qualify for the dividends for that quarter. We didn't make it 'under the wire' this quarter for the Johnson & Johnson (JNJ) stock in our AMB portfolio.. But of course, next quarter we'll be receiving more JNJ shares in DRIP format. Now what of the markets? As I mentioned in the mp3 audio review of last week, we are resting on pretty key support. Let me begin by explaining my thoughts in the context of a portfolio the size of A.M.B.'s Dividend Investing account. I would not take any actions one way or the other. Up, or down. S&P 500 Index Daily Chart For any account, I really do not see the need for a large hedge at this point. So when I speak of a hedge on a break below 1210? It'd be with the thought of seeing if we have any legs down to possibly 1175 or so. And economically, I can see nothing that would provide overly tremendous downside risk. I believe we have a housing report on the way; which can always provide surprises. But I'm not looking at protecting any account from an overly large down move. As always, I could be wrong. Which is precisely why a small hedge could be used on longer term investing accounts of $7,000 or more. And at the same time? We could simply head higher, breaking above 1234 and never penetrating that 1210 region.

Trading Outlook:
Note: By way of reminder, since the Model Portfolio has only $9,205.00 in the Commodity Futures 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 overleveraged gap opens in the commodity futures markets. This is an attempt to demonstrate how account size relates to trading style. 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 $51.08 and is considered a microforex account for the purposes of the model portfolio.

If we break below 1210 on the S&P 500 Index? As I have stated for a few weeks now, the Model Portfolio for Aileron Market Balance I simply too small to risk opening up an index hedge. Now what of other accounts that are larger in size? For any larger account, I might think about putting on an index hedge with a clear break below the 1210 area of support. But it would be 'weighted' on the small side. If you're new, when we talk about a 'small weight' to our hedging, we're speaking of a hedge 1 that is not large in size. A hedge can be a large, over-weight hedge, or very small.
1 A Hedge is an instrument that one would buy as insurance against another position that one has primary interest in profiting from. It's purpose is to protect the larger position, or account, and can be exited when that insurance becomes profitable, or is no longer needed.

Commodity Futures Trading Thoughts

As stated at the outset of this issue, for the year of 2011, I'm looking to wrap up my trading this week. With the exception of possibly one trade that I will discuss here Commodity Futures Market #1 March Sugar No. 11 (SBH2 or possibly SBH12. On ThinkorSwim the code is /SBH2): As I mentioned in the mp3 audio review of trading last week, I still have my eye on this trade. All commodities are getting smacked right now, and smacked very hard. But with Sugar, we have not yet

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clearly broken down below the current region of support on the daily chart of 22.75 cents. March Sugar Daily Chart Sugar trades electronically overnight. As I stated in the mp3 audio review this is not a market that I mind trading overnight, providing the volume is high enough. At times, that means that I'm up early. Very, very early. That requires a bit of an adjustment. There are times that I have risen to trade a market overnight at 3:00 am and nothing ever came out of it, and I had to be awake and ready for congregational responsibilities at 9:15 a.m. Such is the career that we have chosen. Regardless of that, I would like to see Sugar retrace a bit from it's current levels. There is a bit of a ceiling of resistance on the smaller time frames at the 23.13 region. So basically, this is what I'm looking for with Sugar: A fall back away from that 'region' of 23.13. If we then congest, especially near the 23 region, or perhaps a bit below it? I'd be looking to buy breaks up out of any such congestion that could form.

On the smaller time frames that I watch for commodity futures, namely the one hour chart, and the 10 minute chart, we ended trading Friday with a bit of a rally March Sugar One Hour Chart

Forex Markets
Forex Market #1 EUR/USD: As you can see from the trades in the last section, on the smaller time frames we had a few 'pop's higher on the EUR/USD last week. But by the end of the week, we could not break above resistance of the highs on the daily chart, and in the remaining hours, we settled lower. as well as March Sugar 10 Minute Chart Forex has begun trading for the week, and at the time of this writing, we've begun to head lower. I see two trades possible here, both in the same direction. On the smaller time frames trading to the long side, exactly as I did last week. Wait for an area of 'congestion', or 'channeling' to develop. Then buy breaks up out of any such channeling. For an account the size of A.M.B.'s Micro-Forex account, this means a position size of 260 units, or a 0.26 lot. That's the first 'trade' or 'scenario'.

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What of the second? A trade long, on what I'm hoping can be a 'big' mean reversion trade. A break higher than 1.3090(4) on the one hour chart, with a stop loss order around 1.2940. Since this would be a 'longer' time frame trade, and the stop loss is larger on this trade I would only consider a position size of 10 unites. Or on a MicroLot, 0.01. It would be small, but I'd be looking for a retrace at least back to 1.3650. And really, this is the beauty of Forex. It demonstrates something I've always believed true about the Capital Markets. You can get started. Even if you only have $50.00 in truly disposable income. Stock / Futures / Forex Trading Balance: $9,636.80 ( Return / Yield up +7.076 % from inception ) Commodity Futures Balance: $9,585.72 Return / Yield up +7.103 % from inception 3% risk tolerance gives us approximately $287.57 for my drawdown tolerance. $500.00 available from Slush Fund Futures 'Sister' Account Inception to Date Dividend Investing Sister Inception to Date

Summary of the Hypothetical 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 for an explanation of this system).

As follows is the state and balances of the Model Portfolio as of this Sunday evening S&P 500 Since Newsletter Launch on November 13, 2011: -3.5 % Investing Account Balance: $4,011.34 Return / Yield up +0.2835 % from inception 4 shares of PEP (DRIP on Yield is 3.21 % )
4 shares at $63.31 on 11/15/2011 w/ $5.01 Commissions

4 shares of PG (DRIP on Yield is 3.22% )

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

4 shares of JNJ (DRIP on Yield is 3.52 % )

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

Cash: $3,234.74 ( 80.78 % )

-$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 -This leaves $2,994.74 available for new purchases

$500.00 available from Slush Fund

We one commodity futures trade. That long Sugar that I mentioned at the beginning of the week. Remember that? Before I became all enamored with

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the EUR/USD trade? I mentioned the setup in Issue 5.1, and then the actual trade in Issue 5.2. Long 1 SBH2 from 23.56 to 23.60 PROFIT $37.76 on 12/12/2011 (including commissions of $7.04) Micro-Forex Balance: $51.08 Return / Yield up +2.16 % from inception 3% risk tolerance gives us approximately $1.50 for my drawdown tolerance. $500.00 available from Slush Fund Micro-Forex Account Inception to Date

And thus, we have new updated money management statistics

I had a quite a few Micro Forex trades last week that would translate down into AMB's Model Portfolio. Long 260 EUR/USD from 1.3195(6) on 12/12/2011. Exited 208 @ 1.3219(9) on 12/13/2011 for 24 pips PROFIT $0.48 Exited 52 at 1.3197(4) on 12/13/2011 for 1 pip PROFIT $0.01 Short 260 EUR/USD from 1.2983(7) on 12/14/2011. Exited 260 @ 1.2987(5) on 12/14/2011 for 3.8 pips PROFIT $0.11 Long 260 EUR/USD from 12/14/2011 1.2991(5) on

Exited 260 @ 1.2984(9) on 12/14/2011 for 6.6 pips LOSS $0.19 Short 260 EUR/USD from 12/14/2011 1.2983(0) on

Exited 260 @ 1.2987(0) on 12/14/2011 for 4 pips LOSS $0.12 Long 260 EUR/USD from 1.2996(7) on

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12/14/2011. Exited 208 @ 1.3008(1) on 12/13/2011 for 11 pips PROFIT $0.22 Exited 52 at 1.3020(7) on 12/13/2011 for 22 pips PROFIT $0.19 Long 260 EUR/USD from 1.3051(6) on 12/16/2011. Exited 208 @ 1.3072(6) on 12/16/2011 for 21 pips PROFIT $0.63 Exited 52 at 1.3040(3) on 12/16/2011 for 11 pips LOSS $0.09 Long 260 EUR/USD from 1.3041(5) on 12/16/2011 Exited 208 @ 1.3036(4) on 12/16/2011 for 5 pips LOSS $0.10 Exited 52 at 1.3034(7) on 12/16/2011 for 7 pips LOSS $0.06 And my updated Micro Forex money management statistics are as follows S&P 500 Since Newsletter Launch on November 13, 2011: -3.5 % Savings Side-Pocket Account Balance: $2,001.70 Return / Yield up +0.085 % from inception $500.00 for a Slush fund / Drawdown Kill Switch fund $1,001.70 for a Base Savings
Percentages of that Cash:

$806.70 of this cash reserved for 'burn rate / maneuvering' capital ( 80.53 %) $120.00 of this cash reserved for CD Ladder creation ( 12 % ) - One $10.00 One Year CD purchased on 11/21/2010 at 0.60% $20.00 of this cash reserved for the first side-pocket purchase ( 2 % ) $20.00 of this cash I reserve for the second sidepocket purchase ( 2 % ) $35.00 of this cash I reserve for the hedging account ( 3.5 % )

$500.00 for Emergency Savings Getting Paid Fund: $0.00 Redistribution to Other 'Sisters': $0.00 Total Portfolio Balance: $15,649.84 - Total Inception to Date Return: +4.332 % from inception )

If you have any questions regarding my personal outlook, or any other comments, please feel free to contact me

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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: 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, 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. I personally only enter any market after watching and reading the tape and I trade using money management principles. 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 are believed to be public domain, and other pictures were obtained through Wikipedia's public domain policy.