What mechanisms are at work when the market falls dramatically one day and then rises just as dramatically the next?
In short...human nature! (I'm only half-kidding). Of course, mechanically, what drives these abrupt changes is simply a large amount of buyers one day...and a large amount of sellers the next. 

A great metaphor you might like is Mr. Market. Also this video of Warren Buffett talking about Mr Market. It's just a metaphor used to show how capricious, and seemingly irrational, the market can be. 

I don't think there's some philosophically deep mechanism at play (other than human nature). Maybe you could make the argument that new information comes out that justifies a 5-10% swing...but that argument seems flimsy to me.