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Watch Art Cashin: Traders wary of black swan event

Art Cashin, UBS' director of floor operations at the New York Stock Exchange, said concerns of a black swan event, European growth worries and technical weakness in the Russell 2000 are weighing on stocks.

After getting an initial pop, major averages have turned south, deteriorating after European indexes closed near their session lows. Small caps continue to underperform as has been the case since the end of September when stocks starting falling from record highs.

Cashin cautioned a potential black swan event—driven by geopolitical concerns—has some traders on edge. He argued ISIS is a continuing threat to markets as the terrorist group is consolidating just west of Baghdad where the U.S. still has more than a thousand people at its embassy.

"People don't want to get too deeply involved, I don't think, fearing that some bit of news or rumor could pull the plug on them," he said.

Also hurting is hesitation about Europe's growth prospects. "[ECB head Mario] Draghi is not going to be able to do a full QE and that's kind of hanging over everybody," Cashin said.

Market observers warn a rising U.S. dollar and weakness in Europe and China could be detrimental to corporate earnings season, which kicks off Wednesday when aluminum giant Alcoa (AA) reports after market's close.

"The earnings probably will be reasonably OK," Cashin said. "Everybody wants to see what the indications are for the fourth quarter."

Third-quarter earnings growth is expected to be 6.6 percent, according to S&P Capital IQ. That number has come down from previous estimates of 10, 9 and 8 percent growth. Fourth-quarter earnings are anticipated to rise 11.6 percent.