By Sue Chang, MarketWatch

The analyst who in early June projected a 10% correction in the S&P 500 now believes the worst of the selloff is behind us.

"I think we saw the bottom with roughly 1,900 S&P 500 support, given the way in which Fed policy support has been both the limit and backstop of stocks for years, and China has not been devaluing since midweek," said Barry Bannister, chief equity strategist at Stifel U.S. Equity Research.

He pointed out that since the onset of the bull market in March 2009, the S&P 500 has tracked Federal Reserve assets (See chart).

"By comparing the weekly S&P 500 price to the Fed's weekly asset holdings, we see a tight plus or minus 2 standard deviations range, which points to 1,900 downside and 2,200 upside for the S&P 500 so long as Fed assets remain flat at around $4.50 trillion."

All three stock indexes closed higher (http://www.marketwatch.com/story/us-stocks-set-to-fall-as-volatile-week-leaves-investors-wary-2015-08-28) at the end of a week that included a 1,000-point plunge in the Dow Jones Industrial Average on Monday. The Dow posted a 1.1% weekly gain to 16,642.94 while the S&P 500 added 0.9% during the week to 1,988.85 and the Nasdaq Composite rose 2.6% to 4,828.32.

Still, even as the market regains its footing, volatility is here to stay (http://www.marketwatch.com/story/get-use-to-it-volatility-is-here-to-stay-after-china-2015-08-25).

"I think investors would be wise to prepare for more volatility. Volatility tends to be cyclical and it definitely appears to be ramping up after a really benign period over the last couple of years," said Jim Sinegal, an analyst at Morningstar.

The CBOE Volatility Index , also known as the fear gauge, spiked to a nearly four-year high last week as the stock market recoiled from uncertainties in China.

"The current market selloff and spike in volatility is largely attributed to developments in China and uncertainty about the impact of expected Fed hikes," analyst Marko Kolanovic at J.P. Morgan said in a report.

The Fed is watching developments in the China closely (http://www.marketwatch.com/story/fed-watching-china-closely-fischer-says-2015-08-29) to gauge its potential effect on the U.S. economy, Stanley Fischer, the No. 2 official at the U.S. central bank, said on Saturday.

Kolanovic identified technical investors -- people who do not trade on fundamentals but are strategy-focused -- as the culprits behind the 1,000-point flash crash and expects them to continue selling in the next few weeks.

"We estimate that the combined selling of volatility target strategies, trend following strategies and risk parity portfolios could be $150 billion to $300 billion over the next several weeks," he said.

Nonetheless, the recent slide in the market should not discourage investors from hunting for bargains.

"We're now seeing more attractive valuations than we have over the past couple of years," said Sinegal. "Our consumer analysts like Yum Brands Inc. (YUM) , which is very big in China. And our energy analysts are finding a lot of opportunities in companies suffering from lower oil prices."

As earnings go, there are only a handful of S&P 500 companies on deck.

Date             Company (EPS/revenue estimate} 
Tues., Sept. 1   Dollar Tree Inc. US:DLTR  (68 cents/$2.23 bln) 
Tues., Sept. 1   H&R Block Inc. US:HRB  (-40 cents/$136 mln) 
Thurs., Sept. 3  Campbell Soup Co. US:CPB  (42 cents/$1.69 bln) 
Thurs., Sept. 3  Joy Global Inc. US:JOY  (61 cents/$800 mln) 
                 FactSet 

Of greater interest to the market will be the August jobs data on Friday which will provide additional clues on whether the Federal Reserve will raise interest rates as early as September.

"We estimate the U.S. economy generated 180,000 new jobs in August, which is somewhat below the latest consensus call," said James Sweeney, chief economist at Credit Suisse.

Economists polled by MarketWatch are expecting the U.S. economy to have added 223,000 jobs in August.

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(END) Dow Jones Newswires

August 29, 2015 13:20 ET (17:20 GMT)