Wait for Your Pitch

 | Oct 21, 2011 | 8:55 AM EDT
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"Style is knowing who you are, what you want to say, and not giving a damn." --Gore Vidal

A major challenge in the stock market is that different styles of investing and trading work best at different times. Sometimes it's momentum, other times its fundamentals, and sometimes it's shorting or charts -- any number of things. Ultimately, there is some sort of strategy or style that has the right logic for the current market conditions.

The current market environment has been particularly challenging because there aren't many styles or approaches that have been effective lately. What has worked best is day trading the headlines out of Europe. When indices are soft, you start anticipating some sort of positive news that will suddenly spike and can squeeze the shorts, and when we are up you start looking for some negative catalyst to kick in just as buyers are becoming comfortable again. The action has been up and down like that for about two-and-a-half months.

What is most frustrating for most market players is that it has been a waste of time to consider individual charts or fundamentals. Stocks move on European headlines and the vehicle you are in doesn't even matter. What makes it even more challenging is that this action is accentuated to a great degree by the heavy trading of ETFs and the computerized high-frequency trading programs. The action is driven from the top down and from Europe in particular.

It is very easy to complain about this because one thing a great many individual market players tend to pride themselves on is good stock picking. Few things are more rewarding than identifying the stocks that are going to attract the most attention and act best. Without the ability to pick good stocks, many traders have no real edge.

The stock-picking game simply isn't working right now and that is causing a great amount of frustration and unhappiness as we react to European news headlines day after day. You can see it in the mood of the market, which is surprisingly dour even though we are at the top of a month's long trading range and have not been acting that badly.

This morning, the action is once again being driven by the latest news out of Europe. This time it is due to optimism that Germany and France are close to some agreement in front of their meeting next Tuesday. We danced around to this issue yesterday, but now it seems to be resolved and Europe is saved once again.

Unfortunately, I don't have a lot of great suggestions for dealing with this market other than to be patient and wait for your pitch. You can try to trade the headline news, and I bet there will be plenty of folks looking to fade the early strength this morning on headlines that don't really appear to be all that remarkable.

I remain focused on individual names with the expectations that sooner or later, the focus on macro matters will decline. Maybe I'm being a starry-eyed optimist, but I continue to feel we have a good chance of seeing a stock-pickers' market again as earnings season progresses and end-of-the-year seasonality kicks in.

As always, the key to market success is to keep plugging away. If you have been feeling frustrated lately, like so many, just accept it and go back to work trying to find an edge. Eventually, the market dynamics will change in a way that favors you, and if you are mentally prepared, the tough times will be quickly forgotten.



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