The Grumbling Gets Louder

 | Nov 11, 2011 | 8:30 AM EST  | Comments
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"Our frustration is greater when we have much and want more than when we have nothing and want some. We are less dissatisfied when we lack many things than when we seem to lack but one thing." --Eric Hoffer

The indices are ticking up this morning as Italian bond yields fall because investors are more optimistic about political progress in Italy.  

The primary response I hear is traders are sick and tired of being jerked around by European news. Nothing else seems to matter and that is driving my market players crazy.

Actual stock picking has largely become irrelevant because everything moves in lockstep to whatever the news happens to be. What is worse is that the correlation between stocks is so great. Nothing in particular stands out one way or the other. There are no exceptionally strong sectors and no notable pockets of momentum. It is a simply a market where you are long or you aren't and it doesn't matter what you trade.

If your primary trading focus is the indices, then this sort of action may actually be appealing. The catalyst for movement is very clear, and it is just a matter of guessing whether there will be something positive out of Europe overnight. It's either risk on or risk off, and no need to mess around looking for relative strength in individual names.

I've been hearing a tremendous amount of grumbling from traders who focus on picking individual stocks. They don't feel they have any real edge as all their hard work in finding good charts or fundamentals is rendered irrelevant when we have headlines about the most recent event in Europe.

In addition to the futility of individual stock picking, the other thing that is troubling market players is that they have tended to be too bearish lately and are underinvested. Many of them missed the big jump in October and are now scrambling to catch up, but they still worry about being caught too long when we are hit with news like we were on Wednesday. Given the chaos in Europe and the continued struggles of the U.S. economy, you really have to be an optimist to be bullish.

The great irony of the market is that because there is so much skepticism and so many market players have been out of position, conditions are good for more upside. Throw in positive end-of-the-year seasonality and a decent technical pattern in the indices and you have a good-looking setup. That is why I've been leaning long lately.

Unfortunately, there is more to making money than having a bullish bias at the right time. You need to have your capital at work in the right places -- and that is really a big challenge when very little stands out.

The easy solution is to trade the indices and not worry about individual stock picking. Many traders do that, but for others, like me, who think of themselves primarily as stock pickers, it isn't an easy transition to make.

Things look upbeat this morning and the news flow is light. Without anything negative out of Europe, look for the bulls to keep pushing.

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