Another Day Of Gains?

Good morning. Futures are slightly negative as the dollar attempts to stabilize and investors question whether the rally can continue especially since the S&P has posted a gain every single trading day so far this month.

As expected, news flow is relatively quiet but there are a few noteworthy items to cover including a decrease in retail store sales, Moodys makes some positive comments about AIG, heavy losses at MBIA due to its insured credit derivatives, as the market rallies good times return for hedge funds, Senator Dodd is set to unveil a financial reform bill and Obama promises to question China over the Yuan.

Read more of my premarket report.

Short Squeeze

This morning we gapped higher and off we went:

To say the least, I've been around long enough to recognize a short-squeeze when I see one.

Last week we saw two potential tells that this could be in store - 1) a dramatic change in the sentiment as expressed in the AAII (i.e. bearish sentiment had risen to levels not seen since before the March lows) and 2) the positive response to the jobs report and, in particular, late-day strength on Friday indicating that bears had become trapped and not able to escape their positions. When we jumped from the opening bell and continued moving higher, it was clear a short squeeze was underway and another beating was in store for the bears.

Read more of my after-hours report.

What Winners Do To Win

One of the things I continue to notice not only within my own trading circle of friends who trade for a living but also within my mentorship group is that the traders who outperform everyone else have an above average tendency for very strong comebacks. In other words, after they have a bad trade, the next trade is good. After they have a bad day, the next day they have a great day. After they have a bad week, the next week they have an even better week. And so on. Time and time again.

Based on my research, some have said that the reason for "comeback" tendency in high-performers has to do with the fact that after they make mistakes, they become even more focused and motivated than ever. And, that in turn produces better results. Sounds logical, doesn't it? But, I don't think that is completely true! In some traders I've seen them make a mistake and then follow that up with an even bigger mistake. A losing day, followed up with another losing day. A losing week, following up by another losing week. Sound familiar to you?

To understand what the difference may be, my research has indicated that winners tend to comeback not because they are more motivated or focused, but because 1) the level of their skills they posses simply is higher than the rest, and 2) their confidence in themselves and attitude remains positive even during the occasional setbacks that they experience. In fact, winners are more willing to "laugh it off" or find humor when they make stupid mistakes than take themselves and what they do too seriously or beat themselves up. They figure out the best way to correct a mistake is not to dwell on it but follow it right up with a great trade. What is done, is done, and they quickly move on.

I was reminded of this phenomenon over the weekend when watching the HSBC Golf Championship in China. Frankly, I've never seen a worst batch of shots by the world's best players than in the final round in this tournament. But, the winner, Phil Mickelson, displayed something I see in traders who outperform. After completely whiffing a chip shot, he smiled, laughed it off, and then followed that up with a good chip and then a long-putt to make his par.

Phil is known for his short game and he whiffed it in front of millions with everything on the line. He even sells a popular DVD (which helped me to move my handicap back down to single digits this year) on how to carry off that very same shot. Most golfers would have been so mad at the sheer embarrassment of it all, they couldn't make a par that hole if their life depended upon it. Instead, Phil smiled, understood mistakes do happen, and then went immediately back to work and made a number of good shots that enabled him to win the tournament.

The best traders do the exact same thing. They know and expect mistakes will happen but realize that if they're going to win, they need to follow up every mistake with a great trade. However, you can't do that if your mind and emotions are in the wrong place which is why not only have the right skills is important, but your attitude and confidence in yourself and in your strategy will play a more significant role in your ultimate success than you may currently understand and believe. And, that only comes through tireless practice and devotion to your game.