Bulls got what they need again, that is, continuous lower volatility. However, as I mentioned yesterday, since today is Friday and the volume is usually quite low, so we cannot draw too much conclusion from today's movement. Both Durable Goods order and New Home Sales are beating expectation, reflecting that the fundamental of US economy (at least so far) hasn't been damaged by the subprime issue. Next week will bring several important economy news and it's worth paying attention to how the market will react to them. In addition, traditionally both Sep and Oct are quite volatile, so be prepared for some more roller-toaster experience.

The market was closed down a little bit today. But considering that it has moved up by almost 6% since the lows touched one week ago, it is certainly not the end of the world. Volatility was little changed and the trading volume was extremely low, which makes investors think it's summer time again(although summer is close to end). Treasury Bond recovered from earlier loss(therefore yield was lower), indicating investors are still nervous about the credit market. Earlier, the Big Mouth --- CountryWide Financial CEO mentioned that the liquidity crunch is not over yet certainly adds some pressure to the market. Oil was up a little bit after closing down for several days but remained below $70 level. Most sectors were little changed today. Since tomorrow is the last trading day of this week, if volatility can continue to trend down, then it will put bulls in a good position.

The market has a decent rally amid continuous falling volatility. One more positive sign is that the US dollar is getting strengthened against Yen while weakened against Euro, which indicates less unwinding activities. Most Asian and European markets had 1% or more rally overnight and China continued to hit historical high even though its central bank raised the key interest rates for the fourth time this year. Oil price dropped a little due to bearish inventory data. However, its price could remain volatile during this hurricane season. Financial sector doesn't join today's rally until the final hour, when news that Lehman will shut down its subprime loan unit. This indicates that investors start to shrug off bad news, which is another positive sign. On top of that, today's M&A activities also provide a reason for investors to come back. That being said, caution is still required as the volatility level is still quite high and any shocking news can easily change the market sentiment.

Investors get what they need most today, that is, lower volatility. In order for the markets to return to normal trading patterns, less volatility is a premise. Although there is no real news coming out of the meetings between Senate Dodd and the Fed chairman Bernanke, the stance that the Fed will use all tools to stablize the markets itself seems to be enough for the time being to calm investors. Oil price continues to drop for a second day in a row and is below $70 for the first time in more than 7 weeks. As I mentioned earlier, without any major hurricane, oil price should have seen its peak. Most sectors are relatively quiet today along with the broad market. However, some noticeable names in the tech sector show strength, including Google, Apple, and Rimm. This shows that some bargain hunters have started to build up positions. One thing worth pointing out(although admittedly it was old news) is that yesterday marked the biggest daily drop in the yield of short-term T-bill, reflecting panic selling of many money-market fund managers and flight-to-quality buying into those risk-free assets. Just as irrational as those same managers purchased the risky assets at almost risk-free prices, their behaviour is no different this time.

With VIX dropping by more than 10%, the market finally has a chance to experience a relatively quiet day on this Monday. Overnight, most Asian markets had a decent recovery from last week's loss while European markets were pretty much flat(as they have already responded to the Fed's news last Friday). Lowe's better than expected earning results can barely move the market up as currently not many investors pay attention to fundamentals. But sooner or later, they will. Oil price recovered somewhat from earlier loss but further volatility in this market should be expected as now we have entered the busiest period of hurricane season. As I stated last week, the way to recovery won't be a smooth one but if you are patient enough, it can be a rewarding one in the end.