Stocks are heavily overbought, traders are levered like never before and the market is dominated by ultra short term algo traders. On top of that, everybody thinks the stockmarket is due for a correction, but nobody believes it will be bad, because the Fed is having their back, hence nobody bothers buying insurance.
The flash crash in 2010 was a taste of how fast the market can go down, once the algos take over and liquidity dries up in minutes.
The market collapse in 2011 has confirmed again how quickly the market can drop, with an even bigger overall correction.
All that is needed is a trigger. It is everybody's guess what that will be...Bernanke announcing his retirement maybe?
It is all about confidence, isn't it?
Right now confidence in the Fed is as high as it can be...