Republic Risk: It's Volatile

Let's see how the carry trade treats the U.S. market after the Nikkei's big bounce.

Equity Storm Watch Is RED on the S&P 500 and RED on the Russell 2000

After plummeting 12.4% on Monday, the Nikkei managed to snap back 10% overnight, a reminder that markets don't drop in a straight line.

Eventually, shorts cover, which quite often leads to a squeeze. But before you buy the dip in Japan, note that JPMorgan Chase points out that only about 50% of the yen carry trade has been unwound thus far. So, tread with caution.

In the U.S., markets will look to shake off the worst Monday for stocks in 37 years. Futures are up slightly; however, the atmosphere still feels a bit shaky as deep-seated concerns grow over potential issues in global credit. The S&P 500 and Nasdaq futures, after starting the day on a positive note, began to chop by mid-morning. Traders are still a bit shell-shocked despite reassurances from central bankers.

Investors are increasingly turning to safety, boosting hedges against an extreme crash. This surge in insurance comes as Wall Street’s "fear gauge," the C…