E-Mini Crude Oil Futures Volatility Forecast (24/10/2010)

The Crude Oil price is obviously affected more by the seasonal effects, hence, demand and supply are fundamental indicators for this market.

As we mentioned during the previous weeks, the crude oil futures market tends to rise until October and then decrease again. The plot now shows a stable fluctuation of volatility and it seems that the sharp downward movement, which clearly support an uptrend, is now over. Is this sideways move of volatility a reversal signal? The probability is high and there are at least 3 reasons backing our hypothesis:

1) Many companies already bought all the oil they needed and their stocks are now full.

2) The seasonality worked well over the last 40 years creating a perfect cycle (even if there is no certainty that this will happen again)

3) The down trend showed in the volatility chart is now fnished and it is likely that a peak in volatility will be accompanied by a new market trend

The staff of HyperVolatility recommends to enter short positions because the uptrend is clearly losing momentum, hence, banking your profits and closing out your longs would be a wise strategy to adopt.

E-Mini Crude Oil Futures Volatility Forecast (17/10/2010)

The latest prices achieved by the E-Mini Crude Oil Futures contracts completely changed the layout of the TGARCH volatility.

Clearly, the conditional standard deviation is now much more stable and reflects the sideways fluctuations that this market experienced. In this case the asymmetric effect of volatility is absolutely cancelled and such hypothesis is manifestly represented by the chart on the left where drops in the volatility occurred when the market was in a short-term downtrend. This is not surprising though. In the past, the crude oil market always had an inverted leverage effect and the asymmetry of volatility fluctuations was equally distributed between up and down trends.

Nevertheless, the E-Mini Crude Oil Futures market confirms its uptrend (most probably due to the season effect of oil which usually peaks in October and then decreases until March) and that is why is important looking at changes in the TGARCH volatility because a break out of the conditional standard deviation up or down would immediately signal the beginning of a new trend. According to the forecast and to the volatility estimation a down trend should be expected by investors soon.

E-Mini Crude Oil Futures Volatility Forecast (12/10/2010)

The Crude Oil futures market is one of the most heavily traded markets in the world and, given its correlation with stock Indexes, it is necessary to understand how its next fluctuations are going to be like.

Usually, the crude oil cycle is quite simple:prices rises from March until September and then decreases from that point until December.

However, the TGARCH volatility seems to suggest a steady bullish trend because the estimation remains stable around 15%. Nevertheless, such an ex-ante forecast should alert all traders and investors because a rise in volatility is highly probable.

Furthermore, the crude oil futures market recently became extremely asymmetric that is the difference between a bullish and bearish volatility is rather big. Consequently, the aforementioned drop in the TGARCH chart should be interpreted like a warning that bears are about to kick in the market, hence, it is time to:

1) Get rid of long positions

2) Bank profits

3)Enter a new short position as soon as price action gives a clear signal of a bear movement

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