Stock Market Headlines Have Change... for the worse.

Headlines drive the market from day to day. Here's one the market is probably pricing in these days...Some Bailout Goals Still Unmet. You saw the reaction in banks last week, although not attributable to this report. With all due respect to dentists, most of us would rather spend an hour in a dentist chair without Novocain than read a report about what the government is doing with our money, but here's the new quarterly report from the Inspector General of TARP... http://www.sigtarp.gov/reports.shtml. (Click on the January 30, 2010 Quarterly Report). Bottom line: "...even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," and, I might add, with bigger then ever "too big to fail" banks.

Now I don't pretend to understand every aspect and nuance and ramification of the details of this report... I know it's not good overall. Why is that important? Because if the market heads into a freefall, or grinds downward, it will give me confidence to hold a bearish trade even if the market tries to rally from time to time.

Of course if the news is incredibly bullish that same is true... witness the market reaction from the March 2009 lows as headlines changed from doom and gloom to "green shoots."

And that's what's important in staying abreast of things. You want to determine the impact that any news can have on the market so when the market takes its queue from a similar headline you'll know that it's more than a just a one day move... the market is probably going to go in that direction, up or down, based on the impact the news has overall. This generally does not come out of the blue. Its headlines like this day after day that takes it toll, recently against the bulls, and should serve to be one variable that gives you confidence in a trade.

Significant headlines matter, it's that simple. Which ones are the critical stories to follow? Easy... watch the reaction in the market. If it's significant enough, that's the trend until a equally significant offsetting headline/story is powerful enough to reverse trend. Stocks and industries do not move or trend in a vacuum... they move according to perception of the impact of news on future earnings. Write that down.

Traders learn very early in training that a trend is in place until it is broken. We saw last week that the March to January uptrend line was finally broken, really broken.