Some sanity has returned to the market after Monday's swoon but a report said on Tuesday that investors should brace for more shakeouts in the coming days.

Protracted Unwinding

Market participants are worried about an extended sell-off and a contagion effect on other assets, primarily due to fears that the unwinding of yen carry trades will continue, said Reuters in a report. Zhe Shen, head of diversifying strategies at TIFF Investment Management, said, "We expect the sell-off to continue for maybe a few more days as usually these... trades are pretty large," Reuters reported.

Shen reportedly thinks people are biding their time to offload more of their financial assets. "People said 'wait, we're losing too much money from unwinding. Let's just hold and we'll unwind some more tomorrow.'"

Complete unwinding of the yen carry traders will take days and this will potentially extend the market rout, the market strategist said.

Ulf Lindahl, CEO of institutional investors advisory firm Currency Research Associates, shared the sentiment. "There's tons and tons of yen carry trades that still have to be closed out," he told Reuters.

Hedge fund PivotalPath said the most affected by the unwinding are global macroquantitative and managed futures, as they have short exposure to the Japanese currency, the report said. The firm estimates that the yen's strength in August may have inflicted a l1.5%-2.5% loss for those funds' indexes, it added.

Not Regular Correction

The report also said some money managers have already been reducing risk in the past few days and hedge funds started unwinding two weeks back when the equity market began falling. In late July, Morgan Stanley said macro hedge funds could sell $110 billion in the coming weeks if markets further deteriorated.

Kathy Jones, chief fixed income strategist at Schwab, however, told Reuters that the actual size of the positions and how much hedged may be tough to gauge. There could be derivates involved, prompting a "pretty sizeable reaction."

The Nasdaq 100's fall below its record high of 18,647.45 on July 10 is seen as a challenge for a " quick and sustainable bounce back."

Lindahl reportedly said most haven't unwound anything, thinking it is a regular correction. "This is a serious thing, it's not just the regular correction. You don't have gap openings for 4% or 5% in major indexes, and then they recover. There's a serious collapse that's coming," he said.

The Nasdaq 100 on Monday opened at 17,444.40, down 5.40% from the previous session's closing price. Although the index was deep in the red throughout the session, it cut its losses, rising as high as 18,169.49, before settling off this level at $17,895.15.

Also, the Japanese market, which kickstarted the global sell-off has rebounded and ended Tuesday's session up 10.23% at 34,675.46.

The SPDR S&P 500 ETF Trust (NYSE:SPY), an exchange-traded fund that tracks the S&P 500 Index, ended Monday's session down 2.91% at $517.38, according to Benzinga Pro data.

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