Held Captive by the Headlines

 | Oct 19, 2011 | 8:45 AM EDT
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Creativity is the ability to introduce order into the randomness of nature.
-- Eric Hoffer

It takes a pretty high level of creativity to make sense of this market action lately. We have a tremendous amount of volatility as we dance around to major earnings reports and rumors about the European debt situation.

It looked like earnings season was off to a rough start following the IBM (IBM) report on Monday night, but banks and homebuilders found support and, of course, we had some "Europe is saved!" news to make sure that the maximum number of folks were caught leaning the wrong way just when it looked like the market was weakening.

Overnight we had a surprisingly poor report from Apple (AAPL). A number of analysts are dismissing the earnings miss as just a timing matter due to a falloff in sales as buyers anticipated the introduction of the new iPhone, but it still is a bit surprising that analysts didn't see it coming. While the miss by Apple may not be an indication of any major fundamental problem at the company, it is a change in the normal routine of big beats and it's going to raise a few concerns.

A strong report from Intel (INTC) is helping to take the sting out of the Apple miss, but the overall reaction to earnings is quite muddled so far this morning. Unfortunately we are still intently focused on the European debt situation, and that is all that really matters. This morning we are fairly stable despite a downgrade of Spanish debt because of hope that the rumors that hit late yesterday about some sort of deal for a European rescue deal are valid. The European situation is still very uncertain, but the market seems exceedingly eager to embrace the idea of a solution even though it is going to be a very long and difficult process. I suspect the pattern of hope and doubt for a deal will continue for quite a while.

Technically the S&P 500 is sitting at the very top of the recent trading range and is dealing with significant overhead resistance. We are overbought in the short term and have a weak foundation for further upside since the volume on the recent rally has been so poor.

However we really are at the ideal place to squeeze the bears here, much like we caught the bulls at the bottom of the trading range to start October. A technical breakout that triggers buy stops and then a reverse would be in keeping with the character of this market's recent action. If too many bears are leaning against overhead resistance here -- as I think is the case -- look for some upside first before any sort of significant reversal to the downside.

What I find most troublesome about this market is the lack of leadership and little interest in individual stock-picking. Stocks continue to gyrate according to the news headlines, and you might as well just play directional moves with ETFs if you want to trade. There is very little opportunity to produce returns by buying individual stocks that are moving on their own individual merits.

I'm still hopeful that as more earnings reports roll out in the next few weeks we will see a greater focus on individual stock-picking, but the dominance of the European headlines makes it very difficult to have much confidence in charts or fundamentals right now.

Until we are less focused on Europe, trading will continue to be challenging. If you want to play, it's mostly about timing the news flow right now. I'll keep looking for individual stocks of interest but I don't expect it to be very easy until the market focus shifts away from macroeconomic concerns.

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