Japanese stocks suffered a dramatic loss overnight, finishing down 10.6% after falling as much as 14% intraday.  Combined with the previous day's loss of 6.2%, this is the worst 2 day performance since 1987 for Japanese equities.  Indeed, in 2 sessions the entire advance in that market since the lows of September have been erased.

(the chart below is one day delayed, but the Nikkei closed at 8605)

Obviously the one-two punch of an earthquake-tsunami, would be one thing but the unknown fallout (no pun intended) of the nuclear leak(s) is a hard to grasp variable.  How bad it gets, when we will know how bad it ultimately gets (how open ended is this?), and when any actual rebuilding of the hard hit areas begins, are all up in the air.  The Japanese government is not offering much comfort as they seem to either not know what is going on, or not wanting to say it publicly.

I mentioned yesterday there was a supreme air of complacency in U.S. markets as the belief the Fed can hold up everything continued - which I can't blame speculators because Ben Bernanke literally writes op-ed pieces on his backstop of every asset on Earth.  Yesterday was just another moment for the never ending supply of dip buyers as we had another afternoon 'buying opportunity' to rush into the market.... bidding it up.  Those buyers will be trapped this morning by a severe gap down of 2.5%ish (as I write).   Based on the early premarket action, the S&P 500 will finally be entering a more serious type of correction with a premarket print some 6.3% below the highs of mid February.  Obviously this market continues to be more news driven then technically driven, so it is difficult to apply normal techniques to analyzing where things are going.  But unlike yesterday when the financial community was complacent and thankful for a dip to finally get in, I expect a lot more consternation today.

As I've said for the past 2-3 weeks, there has been a change of character and now is a time for caution - this continues to be the case.   Obviously any good news from Japan will cause a spike in markets at some point down the road, but losing a lot of capital while waiting for that news is not a smart risk management strategy.

Lost in this news flow is a Fed meeting today; obviously with hot spots popping up all over the world the potential for QE3 strengthens.   Not something to be discussed in this meeting but this will be the center of attention in the next 2 meetings.