3 p.m. Is the Market's New Witching Hour

Stocks have a new witching hour: 3 o'clock.

Wall Street has seen plenty of wild trading in recent days. Credit worries sent stocks plunging last Thursday and Friday, as Bear Stearns (BSC) held a disastrous conference call. Then bulls stampeded back into the market this week.

Oddly, though, in every session, the wildest action has taken place right around 3 p.m. EDT -- an hour before the close of regular trading.

Just why this is happening isn't clear, though market watchers have some theories.

Richard Bove, an analyst at Punk Ziegel, suggests technical or program trading may be responsible for the wild midafternoon swings. Others speculate that a large investor -- perhaps even a foreign buyer such as China -- may be targeting the U.S. markets.

In any case, the moves have turned heads in the market.

"I've been at this for 40 years, and I can't remember people getting whipsawed like this," says Bove.

That whipsawing is generating a lot of stress in the market among traders. Rumors have been circulating that a number of long/short quantitative hedge funds have been squeezed during the stock movement.

Yesterday, Goldman Sachs(GS) denied that its Alpha Fund has been liquidating. Late Wednesday, the white shoe firm reiterated that stance during a CNBC discussion about quant funds in turmoil because of arbitrage investments made to take advantage of inefficiencies in the stock market prices.

On Wednesday, stocks as measured by the Dow were up 130 heading into 3 p.m., then plunged into negative territory before recovering to finish up 153.

Analytic firm TradeStation(TRAD) says a variation on that theme has played out for a week running. The firm, which tracks movement in the Dow Jones Industrial Average in 20-minute intervals, says 3 o'clock has been the DJIA's most volatile stretch for five straight days.

In a report, Bove cites an article from the Financial Times saying the Chinese have the equivalent of some $4.8 trillion in savings to put to work. That's making them more apt to make riskier investments in foreign markets.

"I certainly have no idea where this is coming from," Bove said. But "it takes a huge amount of money to move the equity markets that sharply in so short a period of time."

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