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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.

E-Mini Crude Oil Futures Volatility Forecast (29/05/2011)

The great depreciation of the US dollar affected not only the “remaining” currencies but it inevitably influenced crude oil prices. Specifically, the market opened at $ 97.5 retested the $ 101 threshold on Wednesday but E-Mini Crude Oil futures did not manage to break through this level and kept moving sideways for the rest of the week. In fact, on Thursday the closing price was $ 100.3 whilst $ 100.7 was the last price print on Friday.

The current volatility is 1.5% (23.8% in annual terms) and the TGARCH plot is still displaying a downward sloping curve which is probably going to settle around the equilibrium point which, in this case, is stable around the 1.1% – 1.2% level (17.4% – 19% annualised).

The sharp and violent depreciation of the American currency and the slightly increased demand (particularly from China and India) have been the most influential market movers the last week and that is precisely why E-Mini Crude Oil futures rallied and achieved the $101 threshold.

However, the conditional variance should not augment over the next trading days and it is probable that the beginning of the next week will see a sideways movement of futures prices followed by an ulterior surge.

The HyperVolatility team is bullish E-Mini Crude Oil futures because the diminishing oscillation rate should back the price action which should retest the $ 103 – 104 area by the next Friday.

Furthermore, the violent depreciation of the US dollar is going to act as a catalyst and consequently many investors and traders will “use” it to earn extra profits.

E-Mini Crude Oil Futures Volatility Forecast (23/05/2011)

E-Mini Crude Oil futures moved higher as we forecasted the last week although the rally was not as powerful as we thought. In particular, the market opened at 97 rose to 99.7 on Wednesday but 99.8 was the closing price registered on Friday.

The volatility is now around 1.9% – 2% (30.1% – 31.7% annualised) and the curve seems to suggest a quite level of market fluctuations in the upcoming days since there is a progressive “softening process” going on.

The fluctuations of the price are clearly lined to the performance of the US dollar against the euro in the last week and the surge of E-Mini Crude Oil futures has been caused by a depreciation of the American currency in the first half of the week (even though on Friday the Euro lost terrain).

Furthermore, it is evident that the market fluctuations rate is now very close to its equilibrium point which is stable at 1.4% (22.2% annualised) and the volatility will probably tend to conclude the mean reverting process before heading north once again.

The HyperVolatility team is bearish on this market because the conditional variance is likely to augment in the next trading days whilst the price should retest the $ 95.5 – $ 96 area and the ulterior strengthening of the greenback should negatively influence the oil market.

Furthermore, the extremely high oil prices we saw over the last 2 weeks had a significant impact on the global demand, which irremediably decreased, and therefore it is reasonable to believe that the OPEC will try to keep prices at a more sustainable price for a while in order to even out the imbalance.

E-Mini Crude Oil Futures Volatility Forecast (15/05/2011)

E-Mini Crude Oil futures sharply plummeted over the last week whilst the conditional variance dropped as we correctly forecasted 1 week ago. The market opened at $ 103 plunged at $ 99 on Wednesday whilst $ 99.5 was the closing price registered on Friday.

The actual volatility is around 3.5% (55.5% in annual terms) but the TGARCH curve is still downward sloping although futures prices kept decreasing in value over the last trading days.

The volatility is clearly going through its mean reverting process, which would inevitably stop once the conditional variance reaches the 1.8% – 2% level (28.5% – 31.7% annualised).

Consequently, it is reasonable to assume that over the next hours the oscillation rate will continue its “journey” towards the equilibrium point whilst futures prices should recovery.

The HyperVolatility team remains moderately bullish on E-Mini Crude Oil futures because the variance is heavily collapsing and such a phenomenon should support the price action which could eventually rise and retest the $ 103 area by the next Friday.

However, a sideways movement of the price is not an eventuality to opt out (particularly in the first half of the next week).

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

The last week we were bearish E-Mini Crude Oil futures because more volatility was expected to hit the market and our forecast proved to be enormously profitable. Specifically, the market opened at $ 113 dropped to $ 108 on Wednesday but the $ 98 per barrel registered on Friday was an absolutely shocking performance.

The actual volatility is around 7% (111% annualised, believe it or not) however it is important to point out that the massive drop the market went through has been mainly caused by a sharp appreciation of the US dollar, which inevitably dragged futures prices down, and by the transfer of significant capital operated by some commodity hedge funds because the fundamental picture (oil supply and demand) did not change much.

However, the upcoming days should see a gradual and constant decrease of the conditional variance because the current oscillation rate is clearly not sustainable in the long run. As a consequence, the diminished market fluctuations should favour a recovery of the price which should head north once again.

The HyperVolatility team is bullish on E-Mini Crude Oil futures and we will place some longs as soon as possible because the price should retest the $ 105 area by the end of the week whilst the volatility curve should mean revert and collapse towards the 1.8% level (28.5% in annual terms).

E-Mini Crude Oil Futures Volatility Forecast (02/05/2011)

E-Mini Crude Oil futures moved higher even this week although we forecasted a bearish movement of the price. Specifically, the market opened at $ 112 rose to $ 113 and then closed to $ 113.7 on Friday.

The current volatility is 1.4% (22.2% annualised) and the TGARCH is displaying a quite stable volatility curve which is a pretty strange phenomenon for such a volatile market.

Moreover, the big rally in oil prices has been mainly caused by the sharp depreciation of the US dollar against the European currencies (particularly Euro and Pound Sterling) and therefore there is no, apparently, strong fundamental reason (such as a shortage of supply or an increased demand) which justifies such a boost in price.

The HyperVolatility team remains bearish on E-Mini Crude Oil futures because the volatility will tend to mean revert and explode in the upcoming days dragging down futures prices in the $109 – $ 110 zone.

Finally, such high oil prices will probably tend to decrease because a further augment could provoke a shrinking in the demand of oil and therefore a loss in terms of capital for the OPEC.

E-Mini Crude Oil Futures Volatility Forecast (24/04/2011)

The last week we were bullish on E-Mini Crude Oil futures and our analysis proved both useful and profitable since the $ 110 target was abundantly surpassed. In fact, futures prices opened at $ 107.1 rose to $ 111.4 on Wednesday but the $ 112.2 was a really pleasant surprise.

The chart shows an upward sloping curve which is now at 2.1% (33.3% annualised) and it is probably going to rise even more over the next trading days dragging down E-Mini Crude Oil futures prices.

Furthermore, the analysis we ran on Euro futures is now suggesting that, at least in the short term, the US Dollar will appreciate against the European currency and, should our forecast be correct, this phenomenon would act as a catalyst for the plummet of oil prices.

The tensions in Libya seems to be less of a problem now and many investors appear to be more concerned about the Euro vs Dollar exchange than anything else. In fact, the news coming from US regarding the rising Federal debt managed to drive down the market quite sharply the last week and this caused the spot rate to hit the $ 1.45 level.

The HyperVolatility team is moderately bearish on E-Mini Crude Oil futures because prices should head south and eventually hit $ 109.5 – 100 by the end of the next week. Consequently, we will place some shorts as soon as possible but should the volatility curve drop and touch the 1.8% area (28.5% annualised) we would probably look for long opportunities.

E-Mini Crude Oil Futures Volatility Forecast (18/04/2011)

The last week we were moderately bullish on this market even if we were expecting a short term retracement which could have dragged E-Mini Crude Oil futures down and clearly our analysis was right once again.

The market opened at 109 dropped to 106.5 and then rose again to 109.4 the last Friday whilst the volatility touched 2.4% (38% annualised) and then dropped significantly to 1.8% (28.5% in annual terms) although the curve seems not to have reached the bottom yet.

On the other hand, the US dollar keeps depreciating against the Euro and such a factor is probably going to maintain oil prices in the current area and if we consider that the situation in Libya is still uncertain the bullish view seems to be the most likely scenario.

The TGARCH curve will tend to mean revert in the 1.6% area (25.3% annualised) and this should keep E-Mini Crude Oil futures in the current zone although the conditional variance will tend to augment and provoke a short term retracement.

The HyperVolatility team remains moderately bullish on this market and we will place some longs as soon as a good opportunity will arise. There might be a bit of a down movement this week but futures prices should get back in the $ 110 area by the end of the week.

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