Daily State Of The Markets: When The Media Becomes The Story

Good morning. There was an abundance of stories for traders to focus on during Tuesday's session. Let's see; you had China's GDP report showing that growth had slowed, some high profile earnings reports, Germany's ZEW report that suggested a recession is on the way, the Moody's warning that France's credit rating may be at risk in the future, the hotter-than-expected PPI report, the NAHB Homebuilder report, and a host of headlines out of Europe relating to what leaders may or may not due before Sunday's deadline.

Stocks started off on the wrong foot as our markets followed Europe's move lower in response to Moody's note about France. Before long the Dow had broken below Monday's low and it looked like we were going to head down another one-way street for the next few days. However, just about the time one might have considered adding those SPXU's to the portfolio again, the market turned.

Maybe the change in tone had to do with the fact that it is an options expiration week. Maybe it had to do with the fact that a large number of mutual funds are staring at their year-ends in less than two weeks. Or maybe traders decided that all the bad news in the U.S. banking sector was out after Citi, Wells Fargo, Bank of America and Goldman had reported earnings (the KBW Banking Index being up 6% was our first clue here). But regardless of the reason, stocks began to rally - and for a change, the move didn't appear to be HFT-driven.

The idea of a further rally made a lot of sense to me and my team and was enough for me to start thinking about getting out of the bitter barn and back on the bull train (well, for a trade, anyway - after all, November is coming!). I opined that with the banks looking like they had bottomed out, at least a temporary reprieve in Europe on the way (remember, Sunday is the deadline for European leaders to come up with their comprehensive plan to solve the crisis), only a modest slowdown in China, and a U.S. economy that didn't look to be taking a dive, I figured tha! t the tr aditional year-end rally might just show up as scheduled. Lest we forget, history shows that buying the lows of October and holding through April has been a very profitable strategy.

But with the major indices still mired in the now two-month old trading range, I reminded myself that patience is an important attribute in this business. And since the market was one negative European headline away from taking another trip through the range, I decided to watch the action a while longer. But the very moment I made the decision that it was probably best to wait for the bulls to serve up some volume, the major story of the day hit.

Well, okay, the media's presentation of a story hit, that is.

The headline was exciting and appeared to be a game changer: "France and Germany ready to agree �2 Trillion euro rescue fund." My first thought was, "Wow, forget the bazooka (the term being applied to a "coordinated response" to the European debt crisis) Team Merkozy had just nuked the problem!" As one might expect, the computers saw the headline and buy programs ensued. Within 12 short minutes, the Dow had surged 160 points and the S&P 500 was breaking out of its range. The reason for the surge was simple, European leaders appeared to have finally located their inner shock-and-awe.

But as is the case with every scoring play this year, this one needed to be reviewed. So, I went to The Guardian website and pulled up the story. Sure enough the headline was correct and the first paragraph of the story seemed pretty clear:

France and Germany have reached agreement to boost the eurozone's rescue fund to �2 trillion as part of a "comprehensive plan" to resolve the sovereign debt crisis, which this weekend's summit should endorse, EU diplomats said.{$end}