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Government Reaction

September 7, 2011 – 5:04 pm

The market turned around late in the day yesterday to end down only 100 points on the DOW. That sounds like a lot but the market was down near 300 points intraday. This morning with positive news out of Germany and some small hope from the President’s job growth speech the market is rising.

At the same time the SEC is looking into leverage ETFs to determine their role in the wide swings in stock prices on a day to day basis. Program trading and leverage index ETFs may well be part of the cause, but no one really knows. It seems a little late and shows you the problem with all government agencies that seem to be reactive instead of proactive. They wait for a problem to develop and then react. The housing mortgage craziness is a example. Many smart people were concerned and no one in government reacted. This time it is the SEC that is slow. Program trading and leverage ETFs have been around for sometime and it seems clear they impact prices by their trading methodology or the influence of leverage.

Be that as it may, the swings are both up and down so attacking ETFs or program trading just because they move the market is not the problem. It is more of a question of do they ‘unfairly’ price or push prices in one direction or another?

Good Trading,

Steve Peasley

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