So I'm sitting here, watching a little 24 point rally in the $SPX after the almost 60 point drop earlier today, and thinking about black swans... what if:

1. The stock market turned into a bear market long before Wall Street imagined it would (oh, like it already has)

2. The second nurse diagnosed with Ebola turns out to have flown the day before on a crowded commercial US flight (oh, that was today)

3. Greece rolled over into a rout (oh, that was today)

4. European leaders had another meeting where nothing at all happened (oh, that's not a black swan, that's just normal, and happens most days)

5. Dennis Gartman went on CNBC and said he had sold everything except his gold/yen trade, and was almost all in cash (oh, that was Monday)...

6. Cramer told his audience that they should not be buying almost everything until a long, long list of 10 things happened (oh, that was Monday)...

7. European stocks closed down yet another 3ish percent (oh, that was today)...

8. ISIS took another military base and now has a clear road to Baghdad (oh, that was yesterday)...

9. Weapons of Mass Destruction were actually found in Iraq in 2003, but kept secret for some unknown reason (hit the news today, possibly distorted)...

10. ...

Ok, those aren't all black, or even grey swans... but the idea of a gaggle of black swans is just fascinating...

Why heck, I'd say the market is holding up really well today...Hope you're having a good day anyway! 

Eoin Treacy's view

Thanks for this summary both of the concerns currently occupying column inches and the responses of some notable pundits. A number of indicators have been flashing red for a while that a larger pullback was likely, but until it actually occurred, few people feel the compulsion to act for fear of missing out on one more new high. In hindsight many different factors will be attributed to the current decline but the most important is liquidity and perceptions of when it might be reduced. 

The market has become reliant on capital infusions since the Fed embarked on its policy of extraordinary monetary intervention in response to the credit crisis. Every time the prospect of them ending it occurs, leveraged traders are put under pressure, volatility spikes and quantitative strategies automatically reduce position sizes. 

The Fed has not yet shown a willingness to impose “cold turkey” on market participants addicted to leverage. Until it does, there is a cohort that sees this pullback as a buying opportunity in the hope that the momentum driven rally will resume when more liquidity is injected. With James Bullard of the St. Louis Fed saying ending QE now might be premature there is scope for at least some steadying and possibly an unwinding of the short-term oversold condition on a number of indices. However such has been the deterioration in the consistency of the uptrends that the most bullish scenario is for a potentially lengthy support building phase.  

In the event that the Fed goes ahead and ends its QE program later this month, additional pressure will come to bear on leveraged traders.