aileron market balance: issue 9

8/3/2019 Aileron Market Balance: Issue 9

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January 1, 2012

Let me be quite clear this is not going to be a predictions for 2012newsletter.

Because I do not predict. Ihave long maintained1 that prediction, for

humans, is quite impossible. As the future unfolds, unaccounted, unforeseenevents continue to develop, which changes the 'initial conditions' on whichthe prediction was based in the first place. This is a long understood principlein science. Yet for some reason, when people approach the capital marketsthey believe they can deny science and predict the future. As my long timefollowers already know, my personal axiom is None of us are God, thereforenone of us can predict the future ....

My market decisions are based on trying to determine where we currently arewith as much accuracy as is possible, and then trying to determine if an 'edge','bias' or implied probability can be applied to current market trends that arealready in place. For trading commodity futures, I look to seasonal data, aswell as the CoT report. Seasonal data andthe CoT report are used as the 'edge'.

What about economics? What is my'edge' or 'bias' when it comes to aneconomic outlook? Well, I think it meanstruly understanding with as muchaccuracy as is possible, the 'road that weare already on today' economicallyspeaking. Then we can more clearly seethe direction which we are alreadyheading, rather than trying to 'predict'. With that information in hand, we canthen approach 2012, rather than try to 'predict' 2012.

Economic Outlook for 2012

I wrote an 2010 outlook newsletter at that end of 2009. At that time I wasconcerned about the hand-off between the public and private sector. I wasconcerned about employment levels. I was also short on the shipping sector,

1 Exact Link -http://www.youtube.com/watch?v=4pMZOXhv3UM

1

Dan ShyDan Shy

[email protected]

IINNFFOCUS:OCUS:

Approaching 2012Approaching 2012

Economic OutlookEconomic Outlook

Dividend InvestingDividend InvestingOutlookOutlook

Trading OutlookTrading Outlook

Summary of A.M.B. ModelSummary of A.M.B. ModelPortfolioPortfolio
http://www.youtube.com/watch?v=4pMZOXhv3UMhttp://www.youtube.com/watch?v=4pMZOXhv3UMhttp://www.youtube.com/watch?v=4pMZOXhv3UMmailto:[email protected]://www.youtube.com/watch?v=4pMZOXhv3UMhttp://www.youtube.com/watch?v=4pMZOXhv3UMmailto:[email protected]


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January 1, 2012

notably Frontline Ltd (FRO).

Economically, I hold a more bullish tone at this time.There are encouraging economic data points, as wellas areas of concern.

The unemployment rate continues to drop. Thesavings rate holds at approximately 3.5%. And thehandoff between the public sector and the privatesector seems to be progressing well.

Unfortunately, as I mentioned earlier, there are alsoareas of concern. As I have mentioned many times, Iam a political neutral. I do not involve myself inpolitical affairs on side or the other. However, as mywork involves the capital markets, I do keep my eyeon political risk as this greatly impacts the markets.And at the present time, the United States and GreatBritain have an extremely fragmented politicallandscape. Numerous divisive elements within thesphere of these two economies have become soinflamed, and so unable to come to any agreement onissues that are even considered beneficial by all sides!

So I approach 2012 cautious of political risk, buteconomically looking for continuing beneficialeconomic data.

Dividend Investing OutlookI stated more than a month ago that I did not want toget caught within an oops scenario; or a scenario bywhich I participate in a break higher in the market,only to watch if fall even lower at the beginning of2012.

Typically on a seasonal basis, it is typical for theoverall stock market to fall until the second or thirdweek in March. There can be a brief rally at the endof January. But if and when this rally develops, itgenerally only lasts until the second week of February,with the previous downward trend continuing, again,until March.

That is one possibility, and it gives us an 'edge' to tryto use. To do so, I will only be watching equity pricesover the next two weeks. If the market begins to fall,this may confirm that the seasonal tendency is provingtrue this year.

In which case? I'd simply wait. March is two monthsaway. That gives me plenty of time to generatetrading profits that I can 'share' with my dividendinvesting 'sister' account, and thus have even morecash to both average down, and buy more stock if the

opportunity arises.

Of course, a downturn in the market is only apossibility. Thus, why I need to monitor the first fewweeks, to see what the market actually gives us.

Now those comments are for an account the size ofA.M.B.'s model portfolio. As I have mentioned inprevious newsletters, with 73.99 % cash and with suchsmall positions, I do not yet want to open up theaccount to the risk of a hedge position against theindex.

What about larger accounts? For any account that has4 or more positions, and that has an account balancegreater than $6,000.00? I think that if the S&P 500Index

Does not break higher than 1280 and

Breaks below 1247

that a hedge could be initiated. In what manner?Taking the total account size (stocks as well as cash),and then taking 2% of that size, and buying SPY Puts.Such put options would be 3 months distant say theApril 127 strikes.

By way of example, let's continue this math forward.Naturally, if the account was only $6,000.00, then 2%of that size is $120.00. But April Puts with 127 strikesare going for 7.05 at the last print, or $705.00. So howwould you buy a April Put 127 with an accountbalance of $6,000.00?

Well it'd be a matter of where you want to placeyour stop / loss on your hedge. If the marketcontinues to mark higher? Then at some point you'dwant to jump out of the hedge, and continue to enjoythe market prints higher. So you'd have 1.20 of room

on the SPY April Put before selling it back and closingout your hedge.

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Trading Outlook:

Note: By way of reminder, since the Model Portfolio has only$9,418.08 in the Commodity Futures portion of the portfolio, therewill only be 'brief day trades' at this stage of the game forCommodity Futures trading in order to escape the risk of over-

leveraged gap opens in the commodity futures markets. This is anattempt 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 Forexaccount has $67.10 and is considered a micro-forex account for the

purposes of the model portfolio.

Stock Trading Thoughts

What? Stock trades? Really?

Yes. I do trades in the stock market and in the options

market from time to time.Currently the A.M.B. trading portfolio has $9,418.08available to it. So while the dividend investingaccount cannot hedge the cost basis of those fewshares, we can take this as a trade in the tradingaccount

Dan isn't that just semantics? Why would we dothis as a separate trade out of the dividend account?Doesn't the trade in the trading account accomplish

the same thing, since it all contained within the sameportfolio?

No, it does not, and no, it's not semantics. It mayseem I am opening myself up to a bit of tail risk3 bydoing this, but I would heartily disagree with such anassessment.

I view these accounts as part of the same portfolio, butwith completely different pieces. The dividendinvesting 'sister' account grows by means of earningsof good companies, that pay a dividend. The trading'sister' accounts grow by means of buying low, andselling high; or vice versa. Although managed inmuch the same manner, hedges are not as trades. Theyare taken as insurance in accounts that grow throughcompanies that make products with good earnings.Trades are taken because you believe you have animplied probability or 'edge' in a market.

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

3 Exact Link -http://www.youtube.com/watch?v=hG7s13njBVM

So .. the trade

Stock Trade #1

SPY (April Puts): For the A.M.B. Portfolio, it'd beexactly the instrument that I mentioned earlier. An

April 127 SPY Put.But you know me. I have to have parameters. And itwould be exactly as I mentioned earlier. I think that ifthe S&P 500 Index

Does not break higher than 1280 and

Breaks below 1247

that the trade could be initiated.

So what if an investorcoulddo both? Both a hedge,as well as a trade? So what if they had a tradingaccount of $10,000.00 and a separate dividend account

of $7,000.00? Would I personally take both the hedge,as well as the trade? Well, due to overall portfolioexposure, in such a case I would not. In that case, I dobelieve that an investor and trader would be openingthemselves up to tail risk4.

Commodity Futures Trading Thoughts

Commodity Market #1

March Coffee (KCH12 or perhaps /KCH2 on the

ThinkorSwim Platform): I'm looking at the Coffeemarket for a 'long' or to buy.

I would like to see justa bit of pullback inCoffee, especially onthe one hour chart, andthen watch to see if a base of supportdevelops that I can buy

a breakout of.

At this point, it's just a matter of seeing what sort ofpullback we get in Coffee, if any.

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

3
http://nononsensetrading.com/methodology.htmlhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://nononsensetrading.com/methodology.htmlhttp://nononsensetrading.com/methodology.htmlhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://nononsensetrading.com/methodology.htmlhttp://nononsensetrading.com/methodology.htmlhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVMhttp://www.youtube.com/watch?v=hG7s13njBVM


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January 1, 2012

Commodity Market #2

Mini February Gold (YGG2 or perhaps the GLD

Call Options in the day session): Believe it or not,the guy who is always trying to dispel misconceptionsregarding Gold? Well, this week my fundamental

edge data for this market, is telling me to look forlong, or buying opportunities. And I follow mymethodology. So I'm looking for a buy opportunity.

I can't use the fullcontract, becausewe simply do nothave that sort ofcash.

And I have to behonest, I thinkGold is just about

ready to go. Iwatch the open,

and make sure there is enough volume. As long as the$1,563 region holds, then I'll be looking for breaks tothe upside.

Commodity Market #3

March Mini-Silver (/YIH2 or perhaps SLV Call

Options in the day session): As with Gold, I amlooking for long opportunities in the mini-silver.

However, I can't take both trades at the exact same

time. I'd be worried about being overly bullish on themetals sector if I hadsimultaneous tradesin both Gold andSilver.

Regardless, if I waswith the silver trade?Again, I wouldwatch the open tomake sure there arenot overly large gaps to the upside ( in which case with

both metals, I'd wait for the price to retrace), and lookfor breaks to the upside right away.

It's a tricky thing waiting for the open to see whichway you'll trade the markets.

Forex Markets

It should also be noted that I am notgoing to increasemy position size, although there is more money in themicro-forex account. So I'd be looking to trade in

sizes of units of 260, and when it's time to take myfirst profit, take 208 units off the table, and leave theremaining 52 to see what will happen with; as noted inmy methodology series5 when it comes to 'shredding'.

Forex Market #1

EUR/USD: Believe it or not, I actually do plan ontrading more Forex markets than just the Euro. Butthis is an interesting market at the moment.

Euro news dominates the headlines. We are at theextreme technical end of a deviation from the mean.Usually, seasonally, the Euro falls from January 1 st

onwards. But it should also be noted that the C.o.T.Reports shows that the Commercial interests areridiculously long in the Euro. So we run into asituation that two pieces of fundamental data aredisagreeing with each other.

What to do?

Generally, I go with the C.o.T. Report, because that isthe 'now'. Seasonal data is showing us what isseasonally typical. And quite frankly, in the Euro-zone things are not typicalat the moment.

So basically, I'm going to look to play the long side of

this market, along with the commercial interests, andalong with the technical picture.

The first job, is to wait. Wait to see what developsafter the markets open back up. Then, as long asprevious support holds, then I would look to buy breaks to the upside as I did previously on anycongestion that develops, and 'groom' my stop higheras the market drifts higher..

If current support does not hold then I will observewhat unfolding data is telling me. This is a case inwhich I could actually switch and reverse. The C.o.T.

Report is a funny thing. It's very useful. But it mustbe remembered that Commercials have the 'bankroll'to be able to withstand incredible drawdown that youand I could not, because they are not in the market forthe same reason. I'll keep you informed as to mythoughts here ...

5 Exact Link -http://nononsensetrading.com/methodology.html

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http://nononsensetrading.com/methodology.htmlhttp://nononsensetrading.com/methodology.htmlhttp://nononsensetrading.com/methodology.htmlhttp://nononsensetrading.com/methodology.html


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January 1, 2012

Summary of the A.M.B. Model

Portfolio

Note:In the beginning of this hypothetical portfolio, the sharepurchases of the Dividend Investing 'Sister' will be extremely

small. It is my intent to demonstrate how to grow the size of thesepositions from 2 shares, to 300 shares using the three sisters

portfolio management style. It is also understood that readers ofthis newsletter have a firm understanding of my 'three sisters'

portfolio management system (See the Special Reference issue ofAileron Market Balance for an explanation of this system).

As follows is the state and balances of the ModelPortfolio .

S&P 500 Year to Date: +0.0 %

Investing Account Balance: $4,056.85

Added Funds from Redistributions: $30.00

Return / Yield up +0.638 % from inception

Return / Yield up +0.0 % year to date

4 shares of PEP (DRIP on Yield is 3.12 % )4 shares at $63.31 on 11/15/2011 w/ $5.01 Commissions

4 shares of PG (DRIP on Yield is 3.15 % )4 shares at $61.94 on 11/28/2011 w/ $5.01 Commissions

4 shares of JNJ (DRIP on Yield is 3.46% )4 shares at $62.31 on 11/28/2011 w/ $5.01 Commissions

8 shares of WM (DRIP on Yield is 4.34% )8 shares at $32.39 on 12/22/2011 w/ $5.01 Commissions

Cash: $3,000.61 ( 73.99 % )-$80.00 of this cash I reserve to Dollar Cost Average PEPfurther in the future

-$80.00 of this cash I reserve to Dollar Cost Average PGfurther in the future-$80.00 of this cash I reserve to Dollar Cost Average JNJfurther in the future-$80.00 of this cash I reserve to Dollar Cost Average WMfurther in the future-This leaves $2,680.61 available for new purchases

$505.17 available from Slush Fund

Dividend Investing Sister

Inception to Date

Stock / Futures / Forex Trading Balance: $9,485.18

( Return / Yield up +7.076 % from inception )

Commodity Futures Balance: $9,418.08

Added Funds from Redistributions: -$71.00 Return / Yield up +6.023 % from inception

3% risk tolerance gives us approximately$282.54 for my drawdown tolerance.


Futures 'Sister' AccountInception to Date

Micro-Forex Balance: $67.10



3% risk tolerance gives us approximately

$1.53 for my drawdown tolerance.


Micro-Forex Account

Inception to Date

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January 1, 2012

Savings Side-Pocket Account Balance: $2,028.50



Return / Yield up +0.0 % year to date

$504.62 for a Slush fund / Drawdown KillSwitch fund

$1,009.26 for a Base SavingsPercentages of that Cash:

$813.26 of this cash reserved for'burn rate/

maneuvering' capital ( 80.58 %)

$120.00 of this cash reserved for CD Laddercreation ( 11.89 % )- One $10.00 One Year CD purchased on 11/21/2011at 0.60%- One $10.00 One Year CD Purchase on 12/21/2011at 0.50%

$20.00 of this cash reserved for the first side-pocketpurchase ( 1.982 % )

$20.00 of this cash I reserve for the second side-pocket 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

There are a few points that I want to keep in mind forthe savings side-pocket account

1) Do not forget. Each month on the 21st is thetime to buy one $10.00, one year CD as the

CD ladder is constructed. And 2) The interest payments that are made each

month. It's not a lot, but it's something tokeep track of.

3) I made a mistake with the last computation ofthe savings side-pocket account. I forgot toinclude the $10.00 in the Getting Paid Fundas part of the account total itself. This mistakehas been corrected.

Total Portfolio Balance: $15,570.53 - TotalInception to Date Return: +3.804 %from inception .Return / Yield up +0.0 % year to date)

S&P 500 Year to Date: +0.0 %

If you have any questions regarding my personal outlook, or any other comments, please feel free to contact meat [email protected]. I will say that if you have questions about your own trading and you want to ask for myinput? 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 newsletterthat 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 thisnewsletter; 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 orotherwise 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 tradeusing money management principles. The losses in trading can be very real, and depending on the investment vehicle and market, can

exceedyour 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 whoshould 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.

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http://investorandtrader.blogspot.com/2011/05/comment-on-savings-and-challenge.htmlhttp://investorandtrader.blogspot.com/2011/05/comment-on-savings-and-challenge.htmlhttp://investorandtrader.blogspot.com/2011/05/comment-on-savings-and-challenge.htmlmailto:[email protected]:[email protected]://investorandtrader.blogspot.com/2011/05/comment-on-savings-and-challenge.htmlmailto:[email protected]

aileron market balance: issue 9

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