The markets are likely to lean whichever way the European winds blow Wednesday.

That was certainly the influence Tuesday, when a rally in stocks and risk gained more steam after a late day story from the U.K. Guardian said France and Germany agreed to a plan to lever the European bailout fund to 2 trillion euros. But even as markets moved on the report, traders were already knocking the article which quoted unnamed sources. The Dow [.DJIA  11577.05    180.05  (+1.58%)] was up 1.6 percent at 11,577, and the S&P 500 [.SPX  1225.38    24.52  (+2.04%)] rose 2 percent to 1225.

On Monday, stocks went the other way, selling off sharply after German officials played down expectations for the European leaders summit Sunday, at which it is hoped they will have a bigger plan to bolster the banks and use the bailout fund to stop the debt crisis from spreading.

"One day we're happy. One one day we're sad," said one trader. "It's classic. It's insanity at best."

As the weekend draws closer, anxiety over the ability of European leaders to move together towards a solution is likely to grow. The headlines from Europe also compete with U.S. corporate earnings season, and so far Europe has been leading. On Wednesday, Greek unions start a 48-hour general strike, the biggest protest in years, as the Greek parliament prepares to vote on new austerity measures aimed at heading off default.

"Until details, until steadfast plans are on paper and are voted upon, which can take time, it's hard to see how this is nothing short of buying time," said George Goncalves, head of Treasury strategy at Nomura Americas.

Goncalves said the big week for Europe and markets will be the first week of November, when a plan for Europe is expected for the Nov. 2 G-20 leaders meeting. That is also the week that European Central Bank President Jean Claude Trichet resigns and will be replaced by Mario Draghi, who heads the Bank of Italy. There is also a Fed meeting that week.

Apple Sauced

Meanwhile, the earnings parade continues with some big surprises. Tech darling Apple announced a shocking miss in earnings and in revenues after the bell Tuesday. Its earnings rose 54 percent to $7.05 per share, but were below the $7.39 expected, and its revenues were $28.27 billion, less than the $29.7 billion forecast by analysts. Apple stock was down nearly 7 percent in after hours trading.

Apple, for the first time since 2003, failed to beat earnings estimates though it has missed on revenues. Birinyi Associates data going back to 2002 shows that Apple never missed both earnings and revenues in that time period, and the last revenues miss was in 2008.

"This may be a testament to where they are in the product cycle or what we'll see with the new CEO," said Mark Luschini, chief investment strategist at Janney Montgomery Scott. Luschini was referring to Tim Cook, who took over from Steve Jobs. Apple officials blamed rumors of the new iPhone for hurting sales in the September quarter.

Luschini said he did not give the late day report on the expanded euro bailout fund much credence. "The market had a positive tone pretty early, and it really came on the back of corporate earnings news that the market is viewing at the moment as 'glass half full,'" he said.

While Apple's earnings report was bitter news for investors, Intel reported a 17 percent jump in earnings, a better than expected report that drove its stock higher in late trading.

Earnings Wednesday morning include Morgan Stanley [MS  16.63    1.38  (+9.05%)] , United Technologies [UTX  74.12    2.00  (+2.77%)] , BlackRock [BLK  156.30    5.57  (+3.7%)] , Travelers [TRV  51.46    1.88  (+3.79%)] , AMR [AMR  2.82    0.06  (+2.17%)] and Freeport McMoran [FCX  35.38    0.27  (+0.77%)] . American Express [AXP  46.68    1.56  (+3.46%)] , eBAy [EBAY  33.87    0.65  (+1.96%)] , Cheesecake Factory [CAKE  27.23    1.11  (+4.25%)] , Wynn Resorts [WYNN  137.65    2.84  (+2.11%)] and Noble Energy [NBL  83.66    2.17  (+2.66%)] report after the bell.

Goldman Sachs  [GS  102.25    5.35  (+5.52%)] reported its second quarterly loss ever on Tuesday, reflecting steep losses in its investment portfolio. That puts the focus on Morgan Stanley, which has been the target of rumors about its weak performance. Goldman Sachs stock rose more than 5 percent, even after the loss, as Goldman said it could buy back more of its shares.

Economic data Wednesday includes mortgage applications. There is also CPI and September Housing starts and building permits at 8:30 a.m. ET. The Fed's beige book on the economy is released at 2 p.m.

Goncalves says he is watching mortgage applications which dropped off last week. He said he is concerned that if mortgage refis don't pickup that the "operation twist" program the Fed is conducting will not be a success. The 'twist program" involves the Fed selling its shorter duration Treasurys and buying longer dated notes and bonds. It also is reinvesting the proceeds of expiring mortgage securities it holds in its portfolio back into the mortgage market.

He said he is also watching CPI because of the pickup in PPI, but he does not expect to see the consumer data to reflect the higher inflation level - 0.8 percent in September - reported at the producer level Tuesday. Traders have been watching inflation data because they do not think the Fed would return to another extraordinary program of quantitative easing, if there are concerns about rising inflation.