Volatility on the US market spiked after Fed Chairman Ben Bernanke said in a testimony before Congress on May 22 that the Fed may start scaling back asset purchases in the next few meetings. The CBOE Volatility Index, a gauge widely used to measure investor anxiety, has soared over 50 percent since then.

"The US market is trading based upon Fed's behavior and will react to noises coming out of the Fed," Bliss said.

The market's Fed-driven character was partially revealed when it recouped some of the losses on Monday morning following several Fed officials' dovish comments.

Dallas Fed President Richard Fisher said Monday that he was not "in favor of going from wild turkey to cold turkey overnight," when commenting on the Fed tapering policy. While Minneapolis Fed President Narayana Kocherlakota said it was a misperception to view the central bank as more hawkish in its views on scaling back quantitative easing.

In addition, New York Fed President William Dudley said Monday the US monetary policy, though aggressive by historic standards, was not sufficiently accommodative relative to the state of the economy.

A more resilient US market

The US market has become far more resilient than it was before the financial crisis. Since the end of last year, it has overcome a string of challenges such as the so-called "fiscal cliff" and US government's sequester cuts. It has also weathered external risks such as the Cyprus banking crisis, the Italian election gridlock and slowdown in emerging markets.

"There will be a point where money recognizes and smart money recognizes that everything is permanently and inextricably linked, therefore they will realize buoyancy and resilience of the US equity market over perhaps the Chinese market," Greco said.

"Global investors are seeking safety and seeking secure markets to place their money. And when that happened, they go to the market which exhibits the most resilience and the greatest amount of strength. Security is here in the US right now," Greco said.

Most traders think US equities are oversold since the Fed's June meeting last week, when Bernanke said the central bank may moderate its pace of bond purchases later this year and may end the purchases in mid-2014 if economy continues to improve.

The US market gets oversold on a short-term basis on Bernanke's "exit" timetable, Bliss said, the US stock market is going to lift back up and the dip right now provides a good opportunity to buy.

Traders and analysts generally believe the US equity market has a limited upside at current levels, and volatility will be a keyword for trading in the near term.

"I think by the end of the year we will be back near the highs, but I don't think we'll eclipse the highs that we've already set so far," Greco said.

Year to date, the major stock indices was still up over 10 percent despite a roughly 5 percent retreat from their all-time highs set on May 21.