Daily Briefing - 11/05/26 - Mea-Culpa

The speaker begins by stating his intention to be as concise and transparent as possible while discussing a complex situation. He outlines three main topics: an intraday technical market analysis, an update on his personal trading position, and the weekly brief. He emphasizes the need to separate his personal position management, which has led him to the brink of his maximum drawdown, from the general technical analysis of the market. He had previously set a limit, stating that if the market reached 7400, he would hit his max drawdown and be forced to react. This has unfortunately happened without the market offering any opportunity to reduce his risk. He explains that he has already cut a quarter of his position, incurring one of his biggest losses in a long time. The total loss amount is still unknown as 75% of the position remains, which he hopes to salvage. Regarding the technical analysis, he notes that short-term charts, like hourly ones, are no longer meaningful. He believes the 4-hour timeframe is the last reliable indicator for discerning true market movements and will be the focus for future monitoring. The current market situation is at 7400. He reiterates the need to clearly separate his strategic errors, which will be discussed in this session and future intraday briefs, from the weekly technical market updates. The technical invalidation point for the market is around 8000 points. If the S&P 500 reaches 8000, he will stop analyzing it, as it would signify a purely speculative market driven by psychology rather than technicals, rendering weekly briefs on it pointless. In such a scenario, he would seek another rational asset to analyze, possibly Chinese indices. He admits that the short-term situation is extremely tense. If current projections continue, the market could reach 8000 points within three weeks. However, he doesn't believe this will happen in the "real world," as he sees efforts to create a bubble that isn't supported by reality. He touches upon AI, stating his intuition that the current AI narrative is "bullshit" in the short term, despite acknowledging it as a revolutionary technology. Having spent years researching AI, he feels he has a good understanding of its workings and believes the market is currently at an extreme level of "stupid indoctrination" around the sector, unrelated to its actual utility or current advancement. He notes that the S&P 500's current movement is solely driven by AI, specifically tech and semiconductors, with no other sectors contributing to the rise. This makes the 4-hour range crucial, as it's the only timeframe still showing a discernible range. He believes the market is "completely squeezed" at the top of this range, with no short-term upside support. The best-case scenario, if the market retains some rationality, would be a move towards the median and average in the coming week. He then transitions to the transparency aspect, discussing how his personal intuition might be working against him due to the significant loss incurred. He references his own teaching that losing 30% of an account indicates serious errors and that exceeding this level is extremely risky, as psychology often takes over. He confesses to experiencing a "mourning" period over the past two to three weeks, feeling the emotional impact of losing 30% of his capital, a feeling he hasn't experienced in 15 years. This experience reinforces his rule: if you lose more than 30% on a position, you must disengage to avoid emotional bias. He emphasizes that even with years of psychological training, he succumbed to irrational emotions. The first lesson from this experience is to never let losses exceed the 30% alert threshold. Reaching this point means errors have been made, and continuing risks losing everything due to a lack of lucidity. He stresses that blowing up a trading account is unacceptable, especially with larger accounts. He recounts the "enormous amount of stupid mistakes" he made, acknowledging them with complete transparency. He identifies the mechanisms that led to his current situation, calling it a "big lesson in humility." His assessment of the short-term technical situation remains that it is "completely saturated" in the 4-hour timeframe. He believes the AI narrative is "nonsense" and expects a neutralization in the short term. He thinks the market is at the "maximum level of stupid indoctrination" regarding AI, independent of the technology's actual value. He then details his strategic errors. The first and most significant was a strategic error he made in front of everyone, which surprisingly no one pointed out. He explains his trading strategy, which involves waiting for monthly signals and taking speculative short-term trades. Previously, some small losses were incurred on these short-term trades, but nothing substantial. The market then reached a point where it validated a monthly signal, and he took profits. Subsequently, he "legitimately sold the third boundary" and was "wiped out." This resulted in a net zero outcome from gains and losses. He then describes a later period where he "loaded up" on short-term signals, particularly during the Middle East war when oil prices exploded. He was very well-positioned, with a nearly perfect entry price on the S&P. He felt so confident in this trade that he decided to risk 5% of his capital instead of his usual 2%. His stop loss was initially set at 7200, risking 5% of his capital. The accelerating factor in his downfall was the price of oil. While his S&P position was well-placed, his oil trade, accumulated since 2025, performed exceptionally well, doubling his account in a few weeks. This was his biggest trade ever in terms of rapid gains. His critical error occurred on March 30th when he received a monthly signal for the S&P. He stated at the time that the signal was validated and he could reinforce on rebounds with a stop at 7000. He now realizes this rule was fundamentally false. A stop should only be lowered to the top after full validation, which had not occurred. The actual monthly stop loss, based on his strategy, should have been at 7900. By mistakenly lowering his mental stop to the historical high without full validation, he set himself up for disaster. The doubling of his account from the oil trade played a crucial role. With his account size effectively doubled, and believing his stop was safely at the historical high, he felt he was risking only 0.5% to 1% of his capital. This "blinded" him, leading him to reinforce his S&P positions "like a pig" on rebounds, significantly increasing his position size. He had more cash, allowing him to increase position size without increasing the *percentage* of risk, but this was based on a flawed stop-loss assumption. The rapid, straight-line rebound of the S&P 500 caught him off guard. He realized there was a problem when his initial 20% gain on the S&P transformed into a 30% drawdown. He continued to reinforce, convinced by the "psychological pattern" of denial and the high oil price, leading to excessive overexposure. His average cost is now around 6700-6900. With the 5% stop-loss assumption, he quickly found himself at -5%, -10%, -15%, -20%, -25% drawdown. He knew he was overexposed and needed to reduce his position on a support level, but the market offered no retracements. He concludes that a series of errors led to this: impatience, a sudden change in capital (doubling his account), greed, and the critical error of setting his stop loss at the historical high without proper validation. Despite his intuition that he is likely selling at the historical peak of the market, especially for semiconductors and tech giants, he cannot take the risk. He is at his max drawdown and must adhere to his rules to protect his financial future. Even with 15 years of market experience and a strong "sixth sense," he prioritizes risk management over intuition in this extreme situation. He will continue to reduce his positions week after week to preserve capital. He has already cut 25% of his position last Friday and will continue if necessary. To manage the loss, he is trading short-term on WTI and the Yen to generate cash, which will then be used to offset the S&P 500 loss. He also plans to reduce his S&P position on any support rallies until he can afford a stop loss at 7900, meaning his maximum drawdown can be contained at that level. He reiterates that the technical stop for the S&P is at 7900-8000. Any short-term AI-driven rally is "bullshit" in his personal, informed opinion. He believes the AI bubble is closer to bursting than continuing to rally to 8000. He anticipates "catastrophic" earnings reports in July, which will reveal that the current spending by tech giants is not economically sustainable, leading to significant retracements. He emphasizes the critical lesson for others: never let your losses exceed 30% of your account. At that point, errors have been made, and taking distance and cutting positions is crucial, regardless of conviction or intuition. Failing to do so can lead to losing everything. He himself, despite 15 years of experience, fell victim to a confluence of rare circumstances and emotional biases. The 30% threshold acts as a vital "safety belt" to prevent catastrophic losses. He has witnessed others lose their entire accounts by ignoring this warning sign. He concludes by stating that the S&P 500 can only be traded on the 4-hour timeframe now, as it's the only one showing a range. Until the market returns to the median (currently 7046), he will not comment on the S&P 500. He is forced to reduce positions even if his intuition tells him it’s the top, because he must bring his risk management back in line with his rules. He has been transparent about his errors and hopes others learn from them to avoid similar pitfalls.