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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.

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).

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