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E-Mini Crude Oil Futures Volatility Forecast (14/08/2011)

The last week we were bearish Crude Oil and we set $80 as a profit target for our shorts. Needless to say that our forecast was right and the abovementioned goal was achieved at the close of the first day of trading. E-Mini Crude Oil futures opened at 80.9 on Monday, rose to 81.3 on Tuesday, settled at 81.6 on Wednesday, jumped to 85.5 on Thursday and closed at 85.3 on Friday.

The current volatility is 1.7% (26.9% annualised) and the TGARCH plot is evidently displaying a downward sloping curve which seems to have almost completed its mean reverting movement and it is now ready to settle around  the 1.58% – 1.6% level (25.07% – 25.3% in annual terms).

It is worth reminding that the last figures released from the International Energy Agency are quite comforting and suggest that an increase in the industrial demand of oil is already on its way even if the slowdown of the economy made many economists re-evaluate their forecasts regarding the global demand for oil and its derivatives in the 2011.

The HyperVolatility team is moderately bullish this market because the plummet in the conditional variance should now see the market moving sideways in the first half of the week and raise in the second half. E-Mini Crude Oil futures are likely to retest the $ 87.5 – 88 per barrel by Friday but the movement is probably going to be quite slow because the general sentiment is still uncertainty.

Furthermore, the Crude Oil market went through a significant drop over the last 10 days and oil futures are now looking particularly cheap not only to investors and traders but particularly to commercial hedgers and transport companies which will probably try to purchase “on sale oil” in order to fill up their stocks.

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

Crude Oil prices plummeted sharply all week long. The violent and constant drop was manifestly caused by the concerns over a slow growth of the economy and bad figures released from the International Energy Agency (IEA). Last week, E-Mini Crude Oil futures opened at 95.2 on Monday, dropped to 93.2 on Tuesday, plummeted to 91.9 on Wednesday, precipitated to 86.4 on Thursday and closed at 87 on Friday.

The current volatility is 2.42% (38.4% annualised) and the TGARCH plot is showing an upward sloping curve which is exceptionally high and that can be used as an efficient proxy for measuring the fear in the market.

The bearish figures released by the IEA and the slow growth concerns are now the predominant feelings amongst investors and traders. Oil stocks are not empty, meaning that no new orders will be entered, and a low growth in US, Europe and emerging markets implies a decrease in the demand.

Furthermore, if we consider that the US dollar is probably going to appreciate against the Euro, we can only come to one conclusion: high volatility and plummeting prices.

The HyperVolatility team is very bearish on E-Mini Crude Oil futures because the volatility curve, already very high, does not seem to provide any signs of weakness and therefore it is reasonable to believe that the oscillation rate will keep rising over the next trading hours. Consequently, futures prices should plunge and retest the $ 80 area by Friday.

E-Mini Crude Oil Futures Volatility Forecast (02/08/2011)

E-Mini Crude Oil futures prices opened at 99.1 on Monday, rose to 99.4 on Tuesday, dropped violently to 97.2 on Wednesday and remained at that same level on Thursday whilst the last closing price was 95.87 on Friday.

The current volatility is 1.78% (28.4% annualised) and the TGARCH plot is displaying a downward sloping curve which is trying to complete its mean reversion process towards the long term balance point which, for this market, is stable around the 1.68% – 1.7% threshold (26.6% – 26.9% in annual terms).

It is important to mention that E-Mini Crude Oil futures are quite close to the $100 resistance level which has been violated only twice in the last 2 years and therefore it is reasonable to expect some choppy trading accompanied by short term volatility rises.

The HyperVolatility team is bearish E-Mini Crude Oil futures because the fairly low volatility curve should mean revert, at least in the short term, and bring some more market fluctuations whilst the closeness of the price action to the $ 100 barrier should keep away many bulls.

Therefore, we expect the market to retrace in the upcoming days and the $ 93.80 threshold could be eventually retested by Friday.

E-Mini Crude Oil Futures Volatility Forecast (24/07/2011)

E-Mini Crude Oil futures rose steadily over the last 5 trading days and almost managed to break through one of the most important psychological and macro-economically relevant resistance points: that is $ 100 per barrel. In fact, the market opened at $ 96 on Monday, rallied to $ 98 on Tuesday, kept increasing on Wednesday, when it touched $ 98.4, settled around $ 99.1 on Thursday and closed at $ 99.7 on Friday.

The current volatility is 1.85% (29.3% annualised) and the TGARCH plot is showing a fairly low, downward sloping volatility curve which seems to suggest that the upcoming trading days should not bring an excess of volatility in the market.

However, the robust rise in E-Mini Crude Oil futures has been heavily favoured by the great devaluation of the US dollar against other strong currencies but during the next week investors should face the fact that a short term retracement of the greenbacks is almost certain and the imminence of Crude Oil prices to the $ 100 resistance point could bring some more market fluctuations.

The HyperVolatility team is bearish E-Mini Crude Oil futures because of three reasons:

1) The US dollar should appreciate, at least in the short term, against the Euro

2) E-Mini Crude Oil futures are very close to the $ 100 resistance point which is a very robust psychological point

3) The price kept going up since late June and before going on holiday many investors will probably try to cash in and close out their longs

The price action should keep moving sideways during the first half of the week but a shy boost in the conditional variance, favoured by a decreased volume, could easily bring futures prices back down to $ 98 by the next Friday.

E-Mini Crude Oil Futures Volatility Forecast (10/07/2011)

E-Mini Crude Oil opened at 94.95 rose to 96.85 on Tuesday, dropped to 96.6 on Wednesday, increased to 98.6 on Thursday and dropped to 96.4 on Friday. We were expecting a sideway move but the price action headed north although the US dollar kept appreciating against the Single currency.

The actual volatility is 1.8% (28.5% annualised) and the TGARCH plot is still displaying a rather robust and “calm” volatility curve which seems suggesting that the next trading hours will see a further flattening of the conditional variance.

Nevertheless, it is worth mentioning that the $ 2 drop caused by Friday’s macroeconomics announcement did not twist the volatility that much and the sharp depreciation of the Euro against the US dollar should have pushed oil prices back down but this was not the case.

Particularly, we all know that when the US dollar strengthens against the Euro the price action should head south to counterbalance the disproportion but this did not occur and such a phenomenon, along with the total absence of volatility despite the remarkable price change, should be interpreted as a warning signal.

The HyperVolatility team remains bearish E-Mini Crude Oil futures because a slight augment in the conditional variance should drag the price back down in the $ 94 – 95 area. However, it is likely that the next week will see a sideways movement of the price followed by a constant decrease with some volatility on Friday.

Also, we remain bearish in the medium term because E-Mini Crude Oil futures should retest the $ 90 threshold in 10 – 15 days time.

E-Mini Crude Oil Futures Volatility Forecast (04/07/2011)

The HyperVolatility team was right once again. The last week we announced that a retesting of the $ 90 threshold would have been a quite probable scenario and so it was. On the 23rd of June the market closed at $91.8 but futures prices at the beginning of the last week proved our analysis was correct and accurate.

Specifically, E-Mini Crude Oil futures opened at 90.7, rose to 92.8 on Tuesday, touched 95 on Wednesday and then moved sideways on Thursday, whose closing price was 94.9 and Friday where 94.6 was the week’s last print.

The current volatility is 2% (31.7% in annual terms) and the TGARCH plot is visibly showing a curve which has almost completed its mean reverting movement and is about to settle around its equilibrium level which is identifiable in the 1.7% – 1.75% area (26.9% – 27.7% annualised).

The decrease in volatility and the apparent calm in the Euro-Dollar market seem to suggest that a large sideways movement is going to trap the price action over the next trading hours even if we expect oil prices to plunge even more in the upcoming weeks due to the announcement that supplementary stocks will be released to IEA countries in case of emergency (and this should calm down the sentiment of traders and investors for a while).

The HyperVolatility remains bearish on E-Mini Crude Oil futures because in the medium term the volatility will rise and drag the price back down in the $ 92 – 93 area. However, we will not enter the market only if the volatility curve surpasses the 2.2% level (34.9% annualised) because, as previously mentioned, a large lateral movement should be expected.

E-Mini Crude Oil Futures Volatility Forecast (27/06/2011)

The Crude Oil market has clearly been in the middle of a storm. In fact, futures prices have moved quite wildly throughout the entire week without giving any certainty about their movement in the upcoming days.

Specifically, the market opened at 93.05, rallied to 93.7 on Tuesday, touched 94.5 on Wednesday but it then sharply dropped in the last 2 days of the week because 91.8 and 91.3 have been the last price prints on Thursday and Friday respectively.

The current volatility is 2.38% (37% annualised) and the TGARCH plot is showing a curve which is still upward sloping which implies that the upcoming days could see an ulterior increase of the variance and therefore more wild swings.

However, it is worth noting that the short term explosion of volatility has been caused by the decision taken by the OPEC to increase the oil supply in order to fill the hole left by Libya. Additionally, the non-great global economic conditions forced the exporting countries to decrease oil prices primarily because the demand for oil was getting eroded by the excessive price.

The HyperVolatility team is moderately bearish E-Mini Crude Oil futures because, although we believe that the volatility is going to mean revert and collapse, the price should at first move sideways and then retest the 89.5 – 90 area.

Specifically, we do not believe there are going to be violent moves, however, the lateral oscillation of the price action will push the volatility down but many market participants will try to drag the price back on the historically biggest support/resistance level in the Oil market; that is $ 90 per barrel.

E-Mini Crude Oil Futures Volatility Forecast (21/06/2011)

E-Mini Crude Oil futures opened at $ 96.8, touched 99.3 on Tuesday but then dropped to 95.2 on Wednesday whilst fluctuated around 94.9 on Thursday but settled at 93 on Friday.

The current volatility is 2.4% (38% in annual terms) and the TGARCH plot is evidently showing a downward sloping curve which is probably going to collapse even more during the next hours. In fact the mean reverting process is going to end once the conditional variance will have touched the 1.8% – 2% threshold (28.5% – 31.7% annualised).

However, it is worth noting that during the recent days a dropping variance has accompanied a continuous decrease of futures prices even though most the week was characterised by prolonged lateral movements of the price.

Nevertheless, the great decrease in volatility and its positive correlation with the price action are a non-sustainable situation which is going to end soon. Particularly, the price action will benefit from the mean reverting process of the conditional variance even if the recovery should not be extremely violent but constant.

Furthermore, the US dollar is still very weak and the market does not seem to have changed much in terms of fundamentals. Consequently, the HyperVolatility team is moderately bullish on E-Mini Crude Oil futures prices because the aforementioned factors should act as a catalyst for the price action and drag futures back into the $ 97 – 98 area by Friday.

E-Mini Crude Oil Futures Volatility Forecast (13/06/2011)

E-Mini Crude Oil market moved higher in the first half of the week and then retraced in the second half transforming a bullish week in a sideways one. In fact, the market opened at $ 98.8 rose to $ 99.1 on Tuesday, moved higher to 101.8 on Thursday and sharply dropped to $ 99 on Friday.

The actual volatility is 1.9% (30.1% in annual terms) and the curve has now touched the equilibrium point which is stable around the 1.6% area (25.3% annualised) whilst the TGARCH plot is displaying a fairly stable situation where the fluctuations are quite constant and not high.

Additionally, the rise and fall of E-Mini Crude Oil futures has been caused by 2 key factors that significantly influenced the price action: the initial depreciation and consequent appreciation of the US dollar and the meeting of OPEC members.

OPEC countries addressed the supply shortage provoked by Libya but, although Saudi Arabia was willing to compensate for Libya’s default, the overall supply of barrels per day remained unchanged.

The initial aim of OPEC’s meeting was to augment the supply of barrels in order to decrease the price and boost the global demand but the member did not manage to reach an agreement and the sharp appreciation of the American currency in the second half of the week contributed to drag E-Mini Crude Oil futures prices back down in the $ 99 area.

The HyperVolatility team is neither bullish nor bearish because it is probable that the price is going to move sideways even if the low volatility environment could easily be twisted by short term variance burst which would push futures prices back in the $ 95 – $ 96.5 area (particularly in the 2nd half of the week).

E-Mini Crude Oil Futures Volatility Forecast (06/06/2011)

The last week we were bullish E-Mini Crude Oil Futures and we were only partially right because after a powerful rally the market retraced and moved laterally for the remaining days: a very quiet week.

Specifically, the market opened at $ 100.2 rose to $ 102.6 but it then dropped back to $ 99.9 on Wednesday whilst it remained almost constant around $ 100. 5 – 100.6 on both Thursday and Friday.

The actual volatility is 2% (31.9% in annual terms) and the TGARCH curve is clearly downward sloping highlighting that the mean reverting process is not over yet and that an even lower rate of market volatility should be expected over the next trading days.

Specifically, the conditional variance is likely to retest the 1.5% threshold (23.9% annualised) which is the long term equilibrium point and then jump back up again although it should then move sideways for the rest of the week.

The HyperVolatility team is moderately bearish on E-Mini Crude Oil futures but the plunge should be minimal because we think the week is going to be quite again and we expect the price to touch $ 98 – 100 and then move laterally until the next Friday.

However, an unexpected sharp depreciation of the US dollar could cause futures prices to move higher and therefore it is logical to constantly monitor the volatility of the Euro against the US dollar.

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