It's Apple versus China, Europe for market focus

Good news from Apple should be a positive for stocks Tuesday, as five Dow stocks and dozens of other major companies report earnings ahead of the opening bell.

Apple stock rose to more than $101 per share Monday afternoon, after the company reported better-than-expected earnings and a 12 percent increase in revenue, on the back of its latest iPhone launch.

So far, with a few high-profile exceptions, earnings are coming in better-than-expected with 63 percent beating per share estimates and profit growth expected to be 6.7 percent, according to Thomson Reuters.

Meanwhile, better than expected Chinese growth data could add to the optimism.

Gross domestic product (GDP) growth for the July-September quarter came in at 7.3 percent from the year-ago period, beating a Reuters forecast for a 7.2 percent expansion and after the 7.5 percent growth in the second quarter.

This is the slowest reading since the first quarter of 2009, when China's growth rate slumped to 6.6 percent amid the depths of the global financial crisis.

Read MoreChina's third-quarter GDP data beat forecasts

Still, markets chose to focus on the better-than-expected print. The Shanghai Composite erased earlier losses to enter positive territory and the Australian dollar gained 0.3 percent against the greenback, the best level since Thursday's high of $0.8830.

Early morning earnings reports are expected from Dow components McDonald's, Coca-Cola, Travelers, Verizon and United Technologies.

Other companies reporting ahead of the opening bell include Lockheed Martin, Kimberly-Clark, Illinois Tool Works, and Canadian Pacific Railway. Yahoo, VMWare, Discover Financial, Six Flags, Cree, ETrade, Broadcom, and IRobot report after the close.

Read MoreStock market salvation: It's all about the buybacks

Besides earnings, there are U.S. existing home sales data at 10 a.m. Economists expect a slight gain to 5.1 million.

Traders on the floor of the New York Stock Exchange.
Lucas Jackson | Reuters
Traders on the floor of the New York Stock Exchange.

Stocks were higher Monday, but the Dow, up just 0.1 percent, lagged other indexes because of the outsized impact of IBM.

IBM was down more than 7 percent on earnings news, but its report was seen as company specific, not a general comment on technology. The S&P 500 was up 0.9 percent at 1,904, and the Nasdaq was 1.3 percent higher at 4,316.

Treasury yields were lower, and the creep higher in European yields continued to be a concern though U.S. markets were far calmer after last week's dramatic selloff in stocks and swings in bonds.

Larry McDonald, head of macro strategy at Newedge, said he's watching Europe, where Greece exiting its bailout remains a risk and is sending ripples across the continent. Credit default swaps, while off last week's highs are still elevated for Italy, Spain and France.

Read MoreHere's why the stock market is calmer this week

McDonald said the market will continue to be driven by international events. "I don't think the earnings season is going to overpower the things that drove the 10-year to 1.87," he said. The 10-year yield was lower at 2.19 percent Monday. In Europe meanwhile, yields rose with Greece's 10-year at about 8 percent. Italy's 10-year was yielding about 2.59.

Read MoreMarkets nearing bottom, says Fundstrat's Tom Lee

"The market is being driven by systemic risk in Europe, deflation in Europe, global economic slowdown. I don't think the earnings are driving the market right now. If earnings are driving the market, we would have a pullback like we did," McDonald said. He noted the S&P 500 is now just 5.7 percent from its high, retracing nearly half its intraday decline to 1,820. "If those credit conditions in Europe don't improve, it's a vicious headwind for equities," he said.

Earlier, Goldman Sachs strategists wrote in a note they expect the stock market to bottom with the S&P 500 between 1,850 and 1,890. They also said they expect corporate buybacks to increase after the earnings season. With an average 25 percent of buyback activity in November and December, that should help stocks reach their target of 2,050 on the S&P 500 by year end, they wrote.