Traders watching for more volatility

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As volatility has picked up in the last two days, traders are parsing the latest Fedspeak and other factors that could determine whether stocks hold their gains.

"You've got a market that's close to fairly valued. … You're just going to see a lot more 1 percent moves in the last four months of the year," said Peter Coleman, head trader at Convergex. He said investors are watching the U.S. presidential election polls, Fed commentary on the timing of the next rate hike and economic data that could affect that.

The answer likely won't come immediately in a day with little economic news on the calendar. The NFIB Small Business Optimism Index for August is due Tuesday at 6 a.m. ET, after posting 94.6 the prior month, well below the 42-year average of 98.

The Treasury is also set to hold a 30-year bond auction, and the Treasury budget is scheduled for release at 2 p.m.

The data come ahead of one of the most highly anticipated releases of the week, retail sales on Thursday. No U.S. Federal Reserve speakers are set to speak as policymakers go into blackout period ahead of the Fed's meeting scheduled for next week.

For now, traders will weigh historically dovish Boston Fed President Eric Rosengren's hawkish tilt on Friday against Fed Governor Lael Brainard's caution Monday on tightening too quickly.

Both Fed speakers have historically had a dovish position, favoring lower rates for longer. As a result, Art Hogan, chief market strategist at Wunderlich Securities, said he would put slightly more weight on Rosengren's change in tone than Brainard's comments.

After Brainard's remarks, the S&P 500 rallied nearly 1.5 percent Monday in its best day since July 8 to close at 2,159, with telecommunications and consumer staples leading all 10 sectors higher. The other defensive and rate-sensitive sector, utilities, dragged all the sectors lower Friday as the S&P fell 2.45 percent in its worst day since June 24, after the surprise U.K. vote to leave the European Union.

"Obviously, investors now wonder if this sell-off is the start of something more sinister. We think not," S&P Global Market Intelligence U.S. Equity Strategist Sam Stovall said in a Monday note. "From a technical perspective, we believe the S&P 500 remains firmly in a bullish bias, and has a good chance of bouncing once we trade as low as 2100."

He pointed out that Friday's stock declines were mostly in sectors with the highest year-to-date price gains up to Thursday's close or paid the most in dividend yields.

The demand for those dividend-paying sectors such as utilities and telecoms has been high as Treasury yields have remained low with accommodative central bank policy. Amid the latest central bank commentary, yields have risen.

On Monday, the U.S. 10-year Treasury yield climbed to 1.697 percent, its highest since June 24.

But the U.S. two-year Treasury yield, most sensitive to market expectations on near-term Fed policy, hit its highest since just August 26 and was near 0.77 percent in late Monday trade.

It's still difficult to get a clear read on growth and implications for the Fed, Hogan noted, as much of the U.S. August data tends to be revised.

"The net-net of all that, I think, the market is in wait-and-see mode, kind of keeping an eye on China, seeing what energy does," he said.

Overnight, Chinese data for August on retail sales, industrial production, fixed asset investment and new loans are due for release.

"If Chinese stocks were to go down a lot on a number that was weaker than expected, that could be a concern," said Chris Rupkey, chief financial economist at MUFG Union Bank. However, he expects global markets to build overnight on the U.S. stock market gains.

That would support further recovery in U.S. stocks Tuesday from Friday's sell-off.

CNBC and Institutional Investor on Tuesday also host Delivering Alpha. The speaker lineup includes U.S. Treasury Secretary Jack Lew, Kynikos Associates Founder and Managing Partner Jim Chanos and Blackstone Chairman, CEO and Co-Founder Stephen Schwarzman.

No major earnings are expected.