Looking for Leadership

 | Oct 20, 2011 | 8:54 AM EDT
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"Opportunities to find deeper powers within ourselves come when life seems most challenging." -- Joseph Campbell

Although we are near the top of the trading range that has been in place for more than two months, this has not been an easy market to trade. Trading-range action usually offers good stock-picking opportunities, but that hasn't been the case.

The biggest problem is the lack of leadership, as the market trades in a highly correlated manner. With strong leadership, trading in a correlated fashion would be a positive. But there are no pockets of momentum and no themes driving sectors.

The primary reason for the dearth of stock picking is the intense focus on European debt problems. No grand solution seems to be immediately forthcoming, but we are constantly teased by headlines that this will all be over very soon.

Most market players don't believe the European issues will go away any time soon, but there we have had so many big spikes up on news and rumors that it is impossible for the bears to be too comfortable on the short side.

I've been hopeful that earnings season might help shift the focus away from macro matters and back to stock picking, but that has not been the case. Weak reports from Apple (AAPL) and IBM (IBM) have more than offset good reports from Intel (INTC) and others, but overall it has been a mixed bag and there is nothing for the hot money to embrace.

The technical picture is challenging as well. We moved straight up the last couple of weeks on low volume and are now hovering around the trading range highs we saw in late August. We don't have much good support, but a couple of days of churning is helping to give us some consolidation. If we can continue to hold above 1175 of the S&P 500 for a while, it will be a decent setup for upside into the end of the year.

The single biggest challenge this market presents right now is that individual stock picking is so tough. If you have wanted to trade lately, you have to be focused on market timing. Since most stocks are moving together, there is little edge trying to identify individual names that may outperform. Themes and momentum don't exist right now.

With action like this, I try to maintain an agnostic viewpoint and wait for opportunities to develop. I consider myself more of a stock picker than a market timer, and the market right now favors the latter.

Despite softness overseas, a positive open is on the way. We'll see if the bulls can build momentum, but they need to show some energy. Conviction levels are low, the mood is mixed, and as long as we have to stay focused on European news that is unlikely to change.

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