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.

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.

The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

Headlines were quite positive Wednesday as most touted Bernanke's presentation as "soothing" and "calming". This mood was prevalent despite lowering for the third time this year economic growth data. What stood out to bulls primarily was the urge by more Fed governors to proceed now with more QE and Bernanke's statements discussing these "tools" as being available.

The amazing thing regarding markets is the staggering sums of money taken out of equity ETFs and mutual funds. Bull markets can't exist on HFTs and hedge funds alone. While QE3 would warm the hearts of Keynesians, hedge funds and HFTs, launching another measure would just be a band aid.

Market moving events are plentiful given Jobless Claims Thursday and Friday's employment report. The G-20 and the euro zone can and will also deliver plenty of market moving news.

Let's see what happens.

Disclaimer: The ETF Digest maintains active ETF trading portfolio and a wide selection of ETFs away from portfolios in an independent listing. Current positions if any are embedded within charts. Our Lazy & Hedged Lazy Portfolios maintain the follow positions: VT, MGV, BND, BSV, VGT, VWO, VNO, IAU, DJCI, DJP, VMBS, VIG, ILF, EWA, IEV, EWC, EWJ, EWG, EWU, EWD, GXG, THD, AFK, BRAQ, CHIQ, TUR, & VNM.

 

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at www.etfdigest.com .

 
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.