Ready for Stock-Picking

 | Jan 08, 2013 | 8:35 AM EST
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It's the little details that are vital. Little things make big things happen. --John Wooden

Not much is happening this morning, but later today is the traditional earnings-season kickoff from Alcoa (AA). AA itself is irrelevant, but the media always makes a fuss over it because it is first and there aren't any other reports yet. The only other report of consequence this week is Wells Fargo (WFC), but next week the key reports start to roll in.

Many pundits believe that expectations for earnings are low, which will set up for some buy-the-bad-news action, but it is too early to anticipate that. We are still digesting the big post-fiscal-cliff move. We have had good underlying support and plenty of dip-buying interest, but momentum has been slowing and there isn't as much eagerness to chase.

Overall, the market is in good shape technically, with healthy consolidation and plenty of support. We can afford to pull back even more without any real damage.

The best thing about the market is that the political issues aren't having any major impact. At some point the debt ceiling issue is going to be a problem but, as we have seen, the politicians aren't going to do anything until we are close to a crisis. For now, the headlines aren't the drivers, and that is refreshing.

As earning season rolls out, I'm looking for good stock-picking action. We have been driven by macro issue so often the last few years that it is easy to forget what it is like to just focus on picking and trading good individual stocks. I love this aspect of the market the most, but we are held hostage by the headlines far too often.

Many traders enjoy and excel at market timing, but I have always been more successful at focusing on individual stocks rather than the macro picture. Stock picking doesn't work as well when the headline news is driving things, and that has been even more so in the last few years as stock movement has become highly correlated due to more computerized trading and fewer individual investors.

With the indices in a healthy consolidation phase technically and earnings season under way, it is likely to be a good environment for the micro focus. To do well at that game, the key is to find themes or sectors that are working and to track where the hot money is flowing. Individual stock-picking is all about finding stocks just as the broader market starts to embrace them. If you can jump in early as momentum develops, it is possible to rack up good gains.

Over the last few years, one of my biggest frustrations has been how individual stock-picking just hasn't been as important. A big part of that is probably because individual investors have been replaced by high-frequency trading and computers that trade huge baskets of stocks and don't much care about the individual aspects of each equity. They are largely interchangeable and pushed around in groups.

Stock-picking still matters and it pays to be ready. Quiet days are often the best times for finding pockets of action.

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