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Market Volatility Remains Crazy: Dave's Daily

Stocks in this article: AA, XLB, BAC, MS, KBE, KRE, XLF,

You don't need me to tell you how difficult it's been recently to gain comfort with and maintain portfolio positions. The swings in action and mood have driven a lot of investors away. Today I updated one of our Top 10 ETF sectors-- Industrials. The previous update was in early July. What stood out from this and other equity ETF sectors was the dramatic declines in AUM (Assets Under Management) for each ETF. AUM routinely had dropped over 40% and trading volume for many had increased by an equal percentage with the latter indicating selling. This is similar to equity mutual fund redemptions and debunks the notion investors are just switching to ETFs. The bottom line is all this volatility is a major turn-off.

HFTs have added to this volatility and shortly we'll be featuring an explanation of how these programs work in real time plus how their presence is affecting markets.

Wednesday's stock market about face was occasioned by the often unreliable ADP report which showed private payrolls adding 110K which beat estimates of 100K. However, the previous report was revised to 116K which means a decline which wasn't well mentioned by the financial media. Bulls also hoped the Fed might launch QE3 which isn't happening yet. But more Fed governors are clearly anxious to implement it which energized bulls. It's unfortunate that these "tools" seem "transitory" since they only pump stock prices but empirically haven't relieved joblessness or helped housing. It's not positive the Fed reduced GDP growth for 2011 to 1.6% and lowered 2012 to 2.5-2.9%. Bulls can ignore poor data as they believe QE3 is then more certain. The Fed also remained pessimistic regarding unemployment stating it should remain at these levels, and improving only slightly in 2012.

Market leaders Wednesday included financials (XLF) which were battered by euro zone news leading to a short squeeze absent further news.

Meanwhile, across the pond, EU leaders are plenty pissed with Papandreou's ill-timed referendum gambit. Let's remember, he's a socialist which helps explain much of this thinking and Greece's overall policies. EU leaders are trying to fence-in Greece telling them they have no choice but to accept "the plan" period. If Greece seeks to go their own way they'll get their wish putting them back on the drachma.

Gold advanced while the dollar fell slightly. Bonds were slightly weaker while oil advanced on bullish forecasts and other commodities were mixed.

Volume was below yesterday's sell-a-thon and breadth per the WSJ reversed to positive.

You can follow our pithy comments on twitter and join the conversation with me on facebook.

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