Opex Forces and Volatility Rising

There are a couple of forces that are contributing to the overnight weakness.  It has nothing to do with Asian markets or European markets.  It has a lot to do with delta hedging, and the options expiration happening today.  When you have a market trading near the lows for the month, as volatility is rising, traders who are short options that expire today have to delta hedge to reduce risk.  Since most of these market makers and dealers don't like taking too much risk, especially in a volatile market, you get delta hedging forces at work, exacerbating a down move.

The second is the strengthening dollar, and the upcoming ECB meeting.  The SPX has a large portion of earnings coming from overseas, and a strong dollar is never a positive for earnings outside the U.S.  It doesn't really affect the market when the strengthening dollar is contained, but when it goes parabolic, like it has against the euro, then you have S&P companies taking earnings hits.

Lastly, it doesn't help that the Swiss have backed away from their Euro peg, because they have been steadily buying euros to weaken the CHF.  Now, you have even less demand for euros, especially ahead of this ECB meeting.  The euro is probably close to a bottom, as the Fed tightening cycle is more myth than reality, and the euro bouncing higher will help the SPX.  So I can't be too bearish equities here, although the supply and demand fundamentals are not that great.  The market is saturated with overconfident buyers who believe V bottoms are a god given right.

If the market can flush even lower heading for the cash open, then I will be looking to buy for a day trade.  We are closing in on the December bottom, and that will attract bottom fishers, which this market seems to have an unlimited supply of.