US stocks see-saw as bulls fight back after day of intense volatility

Wall Street was gripped by volatile trading on Tuesday as traders scrambled to make sense of tumbling share prices throughout the world.

Having swung between red and green throughout the day, US indices closed on the up. The Dow Jones ended the day 2.33 per cent higher at 24,912.77, the tech-heavy Nasdaq closed up 2.13 per cent and the S&P 500 was up 1.74 per cent.

The Vix, an index measuring the outlook for volatility on the S&P 500, broke the 50 barrier earlier on as US markets bounced wildly between negative and positive readings.

Read more: Asian markets plunge after record Wall Street losses

The so-called "fear gauge" struck its highest level since August 2015 when chaotic Chinese markets sent tremors throughout global trading floors.

Meanwhile Europe's equivalent of the Vix, the VStoxx, produced its strongest one-day jump since the terrorist attacks of 11 September 2001.

"Traders don’t know which way to turn as uncertainty is running high," said CMC Markets analyst David Madden.

"The colossal range on the US indices sum up how irrational equity traders are at the moment, and while some go bargain hunting, others are fearful we could see another leg lower."

Some analysts, however, say the widespread participation of algorithmic robo-trading has exacerbated the recent sell-off.

Read more: Q&A: Why are stock markets falling?

Complex financial products that bet on the level of market volatility were paused or terminated, amid yesterday's febrile trading. Credit Suisse said it would terminate an exchange-traded note known as XIV, which tracks financial instruments that bet against a fall in markets.

XIV, the second-largest publicly traded product tracking swings in the S&P 500, will cease trading on 20 February, the bank said. Nomura also said it would redeem an exchange traded note that bets against the Vix.

Traders who had bet on low market volatility are likely to have suffered hefty losses, with fears that many retail investors were exposed to the sudden market movements. Exchange-traded products make it easier for everyday investors to buy into such positions.

Earlier in the day the FTSE 100 suffered its sharpest drop since the EU referendum, closing down 2.6 per cent at 7,141.40 points.

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