The timing seemed pretty good, as there appeared to be a false break and reversal on April 30. In addition, my concerns regarding dilution due to SCAP were materialized.

However, there was no downside follow-through, and on Monday, May 4, the market gapped up above the breakout range and hasn't looked back since.

I stuck with the trade through Friday, May 8. At this point, the options positions had lost more than 80% of their value.

Even more painful than the loss of the option premiums was watching the stocks I was previously long rocket up by 20%-plus or more on average. In some cases, stocks such as Bank of America (BAC), Yingli Green Energy (YGE) and Hercules Offshore (HERO) were up by more than 70% with respect to the price I sold them at, on or around April 15.

As I watched these stocks rocket up, I felt like a chump. Here I was, fundamentally correct about the countertrend rally, (see Op-Ed: Is a Countertrend Rally Inevitable) and I was out of the market. Worse still, I was losing money on bearish options positions.

Analysis: Where Did I Go Wrong?

It can be dangerous to analyze trades -- winning or losing -- after the fact, because hindsight is always 20/20. However, I think that trying as hard as one can to analyze one’s past trades -- especially the ones that didn’t work out -- is one of the best ways to become a better trader and investor.

When I go back and carefully review my thoughts and my published writings, it's clear that there were major cross currents (not necessarily contradictions) in my thinking. On the one hand, I was hugely bullish regarding the medium term. Fundamentals, flows, contrarian sentiment indicators, etc. I had laid out the bullish case in great detail. On the other hand, I developed a solid and plausible short-term theory of a correction.

As I analyze it honestly and objectively, the arguments in favor of a correction were not, on balance, stronger than the arguments for a continuation of the rally. Not only was there my medium-term case that I laid out in Op-Ed: Is A Countertrend Rally Inevitable? there were important short-term considerations that I'd correctly identified - such as strong inflows, and the fact that almost everybody was expecting a correction (which advised against assuming a short position).

So why did I assign precedence to the short-term factors that favored a correction over the short- and medium-term factors that favored a continuation of the rally?

Ultimately, I believe what biased my call for a correction was simply a general feeling that there must be some sort of correction at some point; that a correction was overdue. This feeling, based on past experiences in different circumstances, was probably exacerbated by a degree of anxiety caused by my wanting to protect the massive gains I was sitting on. Thus, I subconsciously began to select data that relieved that anxiety.