Stocks Swing as Volatility Reigns

Buckle up. Here we go again.

Stocks opened sharply lower Friday — with the Dow Jones Industrial Average falling about 200 points in the first few minutes of trading —  then started to chug higher like a rollercoaster before the next drop.

The market is digesting some encouraging earnings reports against dismal reports on housing and consumer confidence. All that comes amid options expirations, which are expected to add even more volatility to the market today.

Indeed, the CBOE volatility index popped above 70 in early trading.

Thursday was just as dizzying, with the Dow gaining 401.35 points after swinging in a range twice that.

The big buzz in the market today was about Warren Buffett, who wrote an op-ed in the New York Times titled: "Buy American. I Am." In it, the Oracle of Omaha reminds panicked investors of his cool-headed mantra: "Be fearful when others are greedy, and be greedy when others are fearful." Buffett, whose personal portfolio was previously all U.S. government bonds, said he's now buying stocks — and American stocks — because he's getting a "slice of America's future at a marked-down price."

(Why is Buffett buying stocks now? Click on the video above.)

You know when Warren Buffett starts buying stocks that we are at least within a 500-mile radius of the bottom.

"We’re going to continue to see a test — but a test of creating higher lows," Art Hogan, chief market analyst at Jefferies, told CNBC.

"We’ve really created a lot of value," Hogan said, citing the fact that the market has shed some $19 trillion in market cap in the past 12 months. "We have to be selective but I think there are buys out there," Hogan said.

In economic news, the Reuters/University of Michigan gauge of consumer confidence posted its sharpest drop on record, falling to 57.5 in a mid-October reading from 70.3 in September. Housing starts fell 6.3 percent in September to an annual rate of 817,000, much lower than expected and the lowest pace in 17 years. Building permits, a gauge of future-building activity, dropped 8.3 percent to a 786,000 annual rate.

Shares of Advanced Micro Devices jumped after the chip maker's results surprised analysts given the economic conditions. AMD said its graphics chips showed real strength for the first time.

Google shares also advanced after the Internet giant easily beat analysts' forecasts.

Honeywell shares skidded after the conglomerate, which makes everything from flight-navigation systems to air purifiers, reported results that slightly beat market expectations but trimmed its outlook.

The troubled housing and credit markets are hurting the broader U.S. economy, Boston Federal Reserve President Eric Rosengren said, adding that a proactive policy response that includes direct outreach to homeowners was needed.

As the economy worsens and unemployment rises, more Americans are having trouble paying off their credit card balances. That pushed up losses for credit card issuers, forcing them to tighten standards, which puts a further squeeze on cash-strapped consumers, analysts told CNBC.com.

Despite the credit freeze, merger talks between General Motors and privately held Chrysler are moving at a faster pace as potential lenders have thrown their support behind a deal between the two U.S.-based automakers, CNBC has learned.

French car maker Renault denied reports that it was in talks with Cerberus on possibly buying back the Jeep brand, which Renault sold to Chrysler along with American Motors in 1987.

© 2012 CNBC.com