There is an old adage. Watch the last hour of trading and you will get a sense of where the market is headed. Over the past year volume in the last hour of trading has increased from 20.7% to 26.2% The final half hour of trading saw an increase from 12% to 17.1%. A study by Credit Suisse shows that half of the big swings in the last hour drove stocks down even lower. On three days in September more that half of the drop occurred after 3 p.m.

The obvious question is what is causing this heavy volume? Now comes the birth of ETFs (electronically traded funds). They offer leverage and fast action and have become the darling of hedge funds and fast trading pros who piggyback ETF traders. Another theory is that the large sell-offs were due to selling by hedge funds and mutual funds to cover redemptions. Just this past Friday 32 million shares of Ultra Short Financial Proshares changed hands. That was up from 8 million shares in the first three months of 2008.

One other factor that is making this trading go to the wild side is the introduction of 2X and 3X ETFs. This has the effect of doubling and tripling your bet. For example if you invest $100 in a short 3X ETFand the market goes down 10%, you now have $130. But keep in mind that this same leverage can go against you just as quickly. During the past week, the markets have calmed down a bit and the last hour volatility also is less intense.