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E-Mini S&P500 Futures Volatility Forecast (05/10/2011)

E-Mini S&P500 futures opened at 1,158 on Monday, achieved 1,170 on Tuesday, plummeted to 1,149 on Wednesday, and rose to 1,157 on Thursday but on Friday the price dropped to 1,122 in the last minutes of the trading session.

The current volatility is 2% (31.7% annualised) and the plot is still showing a volatility curve which is trading at very high levels but now moving laterally with a shy downward sloping tendency.

The conditional variance is indeed very high but it is likely that the mean reverting process will start to become more and more “heavy” meaning that the volatility curve will probably tend to mean revert towards the next hours even if it will be unlikely to see a full and complete return to the long term equilibrium point.

The HyperVolatility team is bullish E-Mini S&P500 futures because the softening of the oscillation rate should support the price action which could potentially achieve the 1,180 – 1,200 area by Friday.

Nevertheless, unexpected bad news could drag futures prices back down and this time, should this happen, a retesting of the 1,000 support would be almost inevitable.

VIX Index Volatility Forecast (05/10/2011)

The VIX index opened at 39% on Monday, dropped to 37.7 on Tuesday, climbed to 41 on Wednesday, plummeted to 38.8 on Thursday and closed to 42.9 on Friday.

The volatility is around the 7.8% – 8% level (26.6% – 27.7% monthly) and the TGARCH chart is now displaying a volatility curve which is primarily moving sideways even if it is still very close to the 4% (13.8% monthly) long term equilibrium point. The actual situation of the VIX is neither indicating panic nor greed but uncertainty and indecision because many investors are not really sure which way the price is going to head to. Additionally, most of the uncertainty has been caused by both European and American politicians who keep promising new and robust policies to tackle the crises but are not implementing them.

The HyperVolatility team is bearish the VIX index because the stochastic volatility of the S&P500 implied volatility index is not giving any signal of potential bursts. As a consequence, we believe that the high volatility levels at which the VIX is currently trading will not hold for long implying that we could have a closing around the 38% – 39% by Friday.

However, a further round of sell-offs would push the VIX even higher and given the panic surrounding financial markets readings around the 48% – 50% could be easily achieved.

E-Mini Nasdaq Futures Volatility Forecast (05/10/2011)

E-Mini Nasdaq futures opened at 2,227 on Monday, touched 2,254 on Tuesday, dropped to 2,220 on Wednesday, settled around 2,192 on Thursday and closed at 2,123 on Friday.

The current volatility is 1.7% (26.9% annualised) and the TGARCH plot is now showing an upward sloping curve which is suggesting that further market swings could be expected in the upcoming days. However, this level has been hardly violated in the past and it is reasonable to guess that a retracement of the volatility curve will occur.

The HyperVolatility team is moderately bullish E-Mini Nasdaq futures because the conditional variance should plunge and favour a recovery of the price action which could eventually retest the 2,300 threshold by Friday.

 

DJ EuroStoxx50 Futures Volatility Forecast (05/10/2011)

DJ EuroStoxx50 futures opened at 2,097 on Monday, touched 2,163 on Tuesday, plunged to 2,138 on Wednesday, rose to 2,203 on Thursday and retraced to 2,148 on Friday.

The volatility is around 2.5% (39.6% in annual terms) and the TGARCH plot is manifestly displaying a downward sloping curve which seems now ready to start its mean reverting journey towards the medium term equilibrium point which is set around the 1.2% threshold ( 19% annualised).

It is worth noting that this is the first time in 2 months that the volatility curve manages to break through the 2.7% support (42.8% in annual terms) implying that, although some short term retracements are almost inevitable, the conditional variance should probably keep plummeting over the next hours.

The situation in Europe is far from being rosy but some encouraging words are being heard from European politicians which are trying to secure banks exposed to Greece CDS.

The HyperVolatility team is moderately bullish DJ EuroStoxx50 futures because the softening oscillation rate should back the price action that could potentially settle around the 2,220 area before Friday, news permitting.

German Bund Futures Volatility Forecast (05/10/2011)

German Bund futures opened at 136.9 on Monday, dropped to 135.9 on Tuesday, touched 135.6 on Wednesday, settled to 135.7 on Thursday and jumped back up to 136.7 on Friday.

The current volatility is 0.42% (6.6% annualised) and the TGARCH plot is now showing a downward sloping curve which is now trading close to its mean reverting point. The actual situation could lead to 2 different scenarios: the conditional variance spikes again after having touched the 0.4% support (6.3% in annual terms) or it keeps fluctuating laterally until the end of the week.

The probable scenario is half a way through the two just mentioned. In particular, the volatility is likely to increase in the very short term (read the first half of the week) whilst the second half should see a softening of market swings.

The HyperVolatility team is moderately bearish German Bund futures because, despite a probable retest of the 138.5 area in the first 3 days of the week, the price action should head south and eventually touch the 133 – 134 area by the end of the week.

Needless to say that unexpected bad news would push the price back up to 139 but, everything else being equal, we should have a diminishing in the buying pressure.

E-Mini Crude Oil Futures Volatility Forecast (05/10/2011)

E-Mini Crude Oil futures opened at 81.2 on Monday, rose to 83.6 on Tuesday, sharply dropped to 80.8 on Wednesday, jumped back to 82.8 on Thursday and plummeted to 78.6 on Friday.

The actual volatility is 2.3% (36.5% in annual terms) whilst the plot is displaying a downward sloping volatility curve which should keep plummeting over the next trading days although the mean reverting point is not that far from current levels.

It is worth pointing out that oil prices are not mirroring their “fundamental reasons” anymore but are entirely driven by macroeconomics events and the great drop of the Single currency had a massive impact on E-Mini Crude Oil futures prices.

The HyperVolatility team is moderately bullish this market because a short term recovery of the Euro against the US dollar, the extremely cheap oil prices and a softening volatility curve should back the price action which could eventually retest the $ 80 threshold by Friday.

A further plunge in the Euro vs Dollar exchange rate would irremediably drag E-Mini Crude Oil futures prices down in the $ 73 area.

Euro Futures Volatility Forecast (05/10/2011)

Euro futures opened at 1.3509 on Monday, achieved 1.358 on Tuesday, dropped to 1.3552 on Wednesday, retested the 1.3576 area on Thursday and plunged to 1.3388 on Friday.

The current volatility is 0.76% (12% annualised) and the TGARCH plot is evidently displaying a fairly stable curve which should probably remain around this level in the upcoming hours.

The great uncertainty surrounding the Euro zone could keep the selling pressure pretty high but the fact that the fluctuations rate is still trading in a fairly “normal” range seems suggesting that the short term trend could change.

Clearly, most of the movements will be influenced by what politicians are going to say/do in order to ring fence a potential Greek sovereign debt default  implying that a great deal of attention to public speeches will be needed.

The HyperVolatility team is moderately bullish Euro futures because the stable outlook of the volatility curve should support the price action which could eventually retest the 1. 3500 area by Friday.

Swiss Franc Futures Volatility Forecast (05/10/2011)

Swiss Franc futures opened at 111.06 on Monday, touched 111.64 on Tuesday, settled to 111.48 on Wednesday, remained around 111.55 on Thursday and sharply dropped to 110.47 on Friday.

The actual volatility is 0.74% (11.7% in annaul terms) and the TGARCH plot is now showing an extremely flat curve which would probably remain around this level over the next trading days. However, the great steadiness of the curve and the extended bear movement of the volatility could easily lead to short term bursts of the fluctuations rate and consequently to an augment of the buying pressure.

The HyperVolatility team is moderately bullish Swiss Franc futures because it is likely that the oscillation rate will augment over the next trading hours pushing the price action towards the 111.8 – 112 area before Friday.

Nonetheless, extra care should be taken when trading this market because the Swiss authorities are closely monitoring the exchange rate in order to prevent an ulterior sharp appreciation from happening.

British Pound Futures Volatility Forecast (05/10/2011)

British Pound futures opened at 155.4 on Monday, jumped to 156.3 on Tuesday, retraced to 155.8 on Wednesday, settled at 156 on Thursday and closed at 155.7 on Friday.

The actual volatility is 0.53% (8.4% annualised) and the TGARCH plot is showing an upward sloping curve which is trying to complete its mean reverting process towards the long term equilibrium point which is stable around the 0.55% level (8.7% in annual terms).

However, the spread between the current level and the balance threshold is not that striking and consequently there should not be violent moves to be expected over the next trading hours.

The HyperVolatility is slightly bearish British Pound futures because the increase in the conditional variance should push the price action toward the 152.8 – 153 level before Friday.

Nevertheless, further bad macroeconomics news could easily drag futures prices even more down because investors would rush to buy US dollars whose value would irremediably appreciate against all other European countries. Should the last scenario occurs we would see British Pound futures retest the 150 support.

Japanese Yen Futures Volatility Forecast (05/10/2011)

Japanese Yen opened at 130.9 on Monday, touched 130.1 on Tuesday, achieved 130.8 on Wednesday, plunged to 130.3 on Thursday and settled at 129.7 on Friday.

The actual volatility is 0.53% (8.4% annualised) and the TGARCH plot is now displaying a fairly stable volatility curve which is likely to remain at this level even in the upcoming trading days.

However, a short term burst of the conditional variance could very easily occur and that would imply an increase in the buying pressure which would probably push higher the price action.

The HyperVolatility team is neither bullish nor bearish Japanese Yen futures because the volatility should remain at current levels even though some oscillations are highly probable.

The price action should remain around the 130.6 -130.8 level throughout the entire week but a worst than expected news could easily change the scenario and push Japanese Yen futures towards the 131 threshold.

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