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British Pound Futures Volatility Forecast (06/09/2011)

British Pound futures opened at 164 on Monday, plummeted to 162.8 on Tuesday, plunged to 162.4 on Wednesday, settled at 161.8 on Thursday and closed at 162.1 on Friday.

The current volatility is 0.51% (8% in annual terms) and the TGARCH plot is displaying a steady volatility curve whose inclination is neither upward nor downward sloping. However, the absence of short term explosion of the conditional variance looks a bit suspicious if compared to the price action that has been plummeting all week long.

There is clearly a violation of the leverage effect process going on because the volatility is not reflecting the actual market conditions. Usually, such a mismatch is a warning signal and it tends to precede drops in the price action.

The HyperVolatility team is bearish British Pound futures because an increase in the conditional variance should now accompany a plunge in futures prices which are likely to retest the 158 – 159 area by Friday.

Japanese Yen Futures Volatility Forecast (06/09/2011)

Japanese Yen futures opened at 130.1 on Monday, rose to 130.4 on Tuesday, jumped to 130.5 on Wednesday, dropped to 130 on Thursday and closed at 130 on Friday.

The volatility is trading around the 0.5% area (7.9% annualised) and the TGARCH plot is now displaying a slightly upward sloping curve which seems to announce a short term increase in the conditional variance although the overall chart shows a fairly stable curve.

The Bank of Japan is still trying to force its currency down in order to counterbalance the massive buying pressure generated by the sell-off in equity markets and by the increased concerns regarding the sovereign debt problems in Europe.

The HyperVolatility team is bullish on Japanese Yen futures because the volatility chart does not seem to present any sign of sharp retracements. Additionally, it is important to point out that the explosion in volatility, at least in the last months, have been caused by an enormous buying pressure rather than a market drop because, as we all know, the Japanese currency is considered to be a safe haven by investors and traders. We are expecting futures prices to skyrocket and achieve the 132 – 133 area by Friday.

E-Mini S&P500 Futures Volatility Forecast (30/08/2011)

E-Mini S&P500 futures opened at 1,124 on Monday, rose to 1,158 on Tuesday, achieved 1,171 on Wednesday, plummeted to 1,157 on Thursday and closed at 1,175 on Friday.

The current volatility is 2.2% (34.9% in annual terms) and the TGARCH plot displays a sideways movement of the volatility curve which clearly implies the fact that many traders and investors have been waiting for Bernanke’s speech. The conditional variance is still extremely high and the mean reverting process should manifest itself over the next trading hours although some short term volatility increases are quite likely to occur.

However, it is important to point out that the overall interpretation of the chart highlights that a softening of the market fluctuations rate is quite likely to happen.

The HyperVolatility team is bullish E-Mini S&P500 futures because the decrease in market volatility should favour a recovery of the price which could eventually retest the 1,230 points by Friday.

It is worth noting that the majority of investors and traders will focus on the macroeconomics news such as manufacturing index, NFP and initial jobless claims and therefore a great deal of attention will be needed during their announcement.

VIX Index Volatility Forecast (30/08/2011)

The VIX Index opened at 42.4 on Monday, dropped to 36.2 on Tuesday, settled at 35.9 on Wednesday, jumped back up on Thursday, when it touched 39.7 and closed at 35.5 on Friday.

The volatility is around 13% (45% monthly) and the TGARCH plot is displaying an overall downward sloping curve which should continue its mean reverting journey in the upcoming hours. The very last part of the chart shows a small retracement but, as mentioned for the VXN Index, the waiting for Bernanke’s speech on Friday made many investors a bit nervous and this caused the conditional variance to increase.

However, even if some short retracements of the volatility can always happen it is worth pointing out that the oscillations of the VIX Index are decreasing and, given what we can see in the chart, it is likely that the next trading days will see an ulterior flattening of the variance.

The HyperVolatility team is bearish the VIX Index because its rate of fluctuations should diminish and the mean reverting process should become more and more evident. Consequently, we expect the VIX to retest the 30% threshold by Friday.

E-Mini Nasdaq Futures Volatility Forecast (30/08/2011)

E-Mini Nasdaq futures opened at 2.047 on Monday, rose to 2,123 on Tuesday, touched 2,139 on Wednesday, dropped back to 2,111 on Thursday and closed at 2,165 on Friday.

The actual volatility is 2% (31.7% annualised) and the TGARCH plot is showing a slightly upward sloping curve which would normally imply an increase in market fluctuations. The price action has been significantly affected by Bernanke’s speech and many traders either adjusted their positions or closed their existing ones before the conference causing a sensible augment in the oscillation rate.

However, the chart is still displaying a mean reverting process which has not completed its journey towards the long term equilibrium point but that is likely to do so in the upcoming hours.

The HyperVolatility team is bullish E-Mini Nasdaq futures because the volatility should soften over the next trading hours favouring a recovery of the price action which should eventually retest the 2,250 points by Friday.

Needless to say that the macroeconomics news that are going to be released will have a massive impact on the price action and some negative figure could drag futures prices back down into the 2,100 area.

VXN Index Volatility Forecast (30/08/2011)

The VXN Index opened at 42 on Monday, dropped to 35.4 on Tuesday, settled at 35.6 on Wednesday, rose to 39.4 on Thursday and closed at 34.4 on Friday.

The actual volatility is 12% (41.5% monthly) and the TGARCH plot is showing a volatility curve which has now created a double top and seems ready to continue its mean reverting journey towards the 4% level (13.8% monthly).   The very last part of the curve displays an insignificant retracement that was caused by fear and nervousness before Bernanke’s speech but that should not alter the overall process.

The HyperVolatility team is bearish the VXN Index because the large up move should start mean reverting at an increased pace over the next trading hours implying that, given the positive correlation between the Nasdaq100 implied volatility index and its stochastic volatility movement, we should see readings around the 30% threshold around Friday, macroeconomics news permitting.

DJ EuroStoxx50 Futures Volatility Forecast (30/08/2011)

DJ EuroStoxx50 futures opened at 2,171 on Monday, touched 2,234 on Tuesday, achieved 2,250 on Wednesday, plummeted to 2,194 on Thursday and closed at 2,199 on Friday.

The volatility is 2.1% (33.3% annualised) and the TGARCH plot is showing an overall downward sloping curve which seems to be in the final part of its mean reverting journey towards the 0.8% – 1% area (12.6% – 15.8% annualised). However, the very last part of the curve shows a shy retracement of the conditional variance, which has been mainly caused by nervous market moves pre-Bernanke’s speech, and that should not represent a warning signal.

The HyperVolatility team is moderately bullish DJ EuroStoxx50 futures because the conditional variance should keep plummeting over the next hours, although some short term bursts are almost inevitable, and we believe that the 2,260 points will be achieved by Friday.

This week most of the attention will be concentrated on the Italian auction, Manufacturing Index and Non Farm Payrolls and bad figures could surely increase investors’ fear even more.

A great deal of attention will be needed during the upcoming days because even if the volatility should keep plummeting because a negative figures in a leading macroeconomics indicator could easily unleash an ulterior sell-off.

German Bund Futures Volatility Forecast (30/08/2011)

German Bund futures opened at 135.3 on Monday, settled at 135 on Tuesday, plummeted to 134.2 on Wednesday, jumped back up to 134.8 on Thursday and closed at 135.2 on Friday.

The volatility is now 0.44% (6.9% annualised) and the TGARCH plot is now showing a slightly downward sloping curve which should keep plummeting over the next hours and settle around the long term equilibrium point which is around the 0.35% – 0.4% area ( 5.5% – 6.3% in annual terms). The positive correlation between the German Bund futures price and its volatility during market turmoil is a well known fact, hence, a softening of the volatility should be interpreted as a decrease in the buying pressure which pushed the price to make unprecedented new highs.

The HyperVolatility team is bearish German Bund futures because the conditional variance should settle around the long term equilibrium point whilst futures prices should decrease and eventually retest the 133.5 area by Friday.

It is comes without saying that bad macroeconomics news will keep futures prices well above the 135 level and some worse-than-expected reading, particularly NFP or Manufacturing Index, would push the price action towards the 136 threshold.

E-Mini Crude Oil Futures Volatility Forecast (30/08/2011)

E-Mini Crude Oil futures opened at 84.4 on Monday, rose to 86 on Tuesday, dropped back to 85.1 on Wednesday, settled at 84.9 on Thursday and closed at 85.4 on Friday.

The current volatility is 2% (31.7% annualised) and the TGARCH plot is displaying an upward sloping curve which, in normal trading conditions should signal more market fluctuations, but not in the case. The volatility explosion which brought the curve to achieve 0.3% (47.6% in annual terms) did not fully mean revert and it is likely that an initial small augment in the conditional variance, in the first half of the week, will be followed by a drop of the oscillation rate.

The oscillation of the price will highly depend upon the macroeconomics data that are going to be released over the next days and the Manufacturing Index as well as Crude Oil inventories are going to have a significant impact on futures prices.

The HyperVolatility team is bullish E-Mini Crude Oil futures because the volatility should soften and favour a recovery of the price action which could retest the 88.5 – 89 area by Friday.

On the other hand, a great deal of attention will be needed during news announcement because a further negative reading of the manufacturing index could cause an explosion of the conditional variance and a drop in futures prices.

Euro Futures Volatility Forecast (30/08/2011)

Euro futures opened at 1.4358 on Monday, rose to 1.4441 on Tuesday, retraced to 1.4410 on Wednesday, jumped to 1.4376 on Thursday and closed at 1.4491 on Friday.

The actual volatility is 0.71% (11.2% in annual terms) and the TGARCH plot is displaying a stable volatility curve, although sensibly upward sloping, which seems suggesting that in the upcoming hours the market should not experience big jumps or sudden volatility bursts. Clearly, there could be some short term retracements but, even in this market, the mean reverting process tends to be very quick and powerful implying that all “odd moves” are likely to get averaged out.

The HyperVolatility is bullish Euro futures because the conditional variance should not augment in the short term and the price action should move upward over the next trading days. Consequently, futures prices should retest the 1.50 threshold by the end of the week although some short term drops are quite likely to occur but their impact should not be significant in the medium term.

 

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