Trading Update: 17 January 2015

True Profits Earned in 2015 to date: -US$12,341.84
All-time maximum profit earned: US$135,976.98
Current drawdown from all-time maximum true profit earned: US$15,617.94
Change from last update: -US$8,582.76
Directional stance: Portfolio is 64.22% bullish.

Quite a week this week. Let's see where we are from where we left off last week, when I said:

Yeesh the numbers are not looking good this week. That's some fierce red numbers staring out at me, and the maximum drawdown I hit intra-week actually exceeded US$14k. I did mention in the previous update that: 

In the more immediate timeframe the markets seem to be taking a breather and we can expect the S&P 500 to resume the rally from hereon, or more probably after more of a pullback has taken place (somewhere in the low 2000s). So we can expect some more short term pain for the portfolio before we get back into business.

So that's exactly the story of the past week, just that the S&P 500 did slightly more than what I expected and decided to take a frolic and detour into the 1990s. 

Although the S&P 500 has since recovered to 2044, the manner of its climb up back to 2044 indicates a worrying possibility that the S&P 500 has, for the intermediate term, topped at 2094, and a downtrend that could head to under 1800 has begun. This has to be monitored carefully seeing that my portfolio is still very bullishly geared. A heavy fall in the markets (which confirms that an intermediate downtrend is in place) and a bullishly tilted portfolio would not make the best of friends. The short term pain I spoke about previously could turn out to be something more and set back profit gains for some time. Caution is called for! Hopefully the market's movements on Monday can reveal more. I am ready to exit and rejig the stance of the portfolio if the market gives signs that call for it.

So, what has happened since? The breather that the S&P 500 is taking is proving to be longer and deeper. The S&P 500 took that frolic and detour into the 1990s and decided to linger a while more, and even toyed with the 1980s. That frolic and detour has caused the portfolio, which was positioned very bullishly at 60+%, to suffer a larger drawdown. The maximum drawdown experienced this week was at the close of markets on Thursday, at US$22.5k.

However ironically the technicals do not seem to warrant that bearish scenario that I highlighted (i.e. a downtrend that could head to under 1800). That scenario is currently off the table and so it is just a matter of seeing where and when this little frolic of S&P500 wants to end. It is very possible that the frolic ended on Thursday at 1988, or it could go on down to about 1950, so we shall see. It's a bit like getting the flu (I've got one since 2015 began (does my health mirror the markets or what?), but I've had no other symptoms since Day 3 of my flu, save for a lingering cough that refuses to go away for good. That's a bit like downlegs in a bull market - they end when they want to end, you just have to wait it out and let them run their course. So downlegs in a bull market = the flu.

I also have 3 points to note of this week:

1) Volatility - It is encouraging to see volatility returning in the market. Volatility is what makes the portfolio earn (and lose) money. It is all about positioning the direction of your sails (i.e. whether bullish/bearish and how bullish/bearish) to fit the wind direction (i.e. market conditions) when you sail.* Right now sailing with 60% bullishness for the past 2 weeks in the downleg has resulted in a US$20+k drawdown. But I'm looking ahead for the bull to resume thereafter and when you are 60+% bullish in a strong uptrend that means a sweet reaping of profits. Let's see!

*disclaimer - I don't, and can't, sail.

2) Reminiscences of 2014 - This correction reminds me of the downleg during the CNY period last year, right on the evening of the CNY eve/day one of CNY the S&P 500 fell about 40 points and I was thinking what a way to start the year of the whatever animal. Like I am right now, I was bullishly positioned but waiting for the bull trend to resume. (Of course it did :)). And like the downleg we are having right now, the correction from peak to trough was about 100+ points on S&P 500. So will history repeat itself?

3) Fear - On Friday night before the US markets opened, the S&P 500 futures actually dived down to about 17 to 20 points during afterhours, hitting the 1970s. On a traders' forum that I frequent, a number of traders admitted that at that moment they had lost faith in the bull and wanted to pull out their positions then, and for some it was faith/intuition/some superstition that "gave them strength" or "helped" them to hold on. Some with nerves of steel actually doubled down on their long positions - they appear to have been proven right for now, based on Friday's rebound. Well if you ask me, from what I am seeing out there, emotions are running high in the markets and there are jitters out there. All signs that a rebound is near and the downleg is about to end. A bull market is sustained by fear and needs to climb a wall of worry.

As Colonel Kilgore said in Apocalypse Now during the thick of the action during the Vietnam War to his disbelieving soldiers (who were so caught up in the horrors of war around them then): "Someday this war's gonna end."