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Why We're 'Rallying'...for Now

Wednesday, 10 Aug 2011 | 3:08 PM ET

Why are we rallying? Trading in large ETFs suggest that selling (at least for the moment) has been exhausted.

Why do I say this? Look at trading in the largest ETF of all — The SPDR ETF.

There was very heavy volume all morning going into the close in Europe at 11:30am ET...shortly thereafter volume dried up for several hours, and we moved sideways...about 1:40am ET, several headlines flashed from Societe Generale in France (reaffirms its weak exposure to peripheral govt debt, says its fulfilled almost all its 2011 funding needs), volume picked up, and picked up again as we passed the highs of earlier in the morning.

This doesn't mean that traders won't try to sell into the rally, by the way.

Elsewhere: what's going on? I keep getting asked why the market is trading in such wild ranges on a daily basis.

It's easy to say, "Stocks are trading on fear and not on fundamentals," and that's certainly true.

But don't kid yourself: in the long term, stocks trade on a multiple of earnings. And that's the problem right now.

Bulls say, "Stocks are cheap," because the P/E (price/earnings) ratio is 11 or 12 times forward earnings, which is cheap by historic standards.

But that is meaningless when NO ONE — and I mean NO ONE — can agree on what the "E" is. Estimates of $95 or so for earnings on the entire S&P 500 are MEANINGLESS because there has been a tsunami of new information in the past three weeks. Those numbers will likely be coming down. How much is what much of the fight is about.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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