E-Mini Crude Oil Futures Volatility Forecast (22/11/2010)

The volatility in the Crude Oil market is moderately high but we still think that readings of 1.5% (23% annualised) are still too low for such a market.

Furthermore, crude oil prices should lower because of the seasonality effect that every year drives oil futures down during the last stage of the year.

On the other hand, an ulterior weakening of the dollar caused by the currency war could maintain prices around $ 83 – $ 84 a barrel but the staff of HyperVolatility is still firmly bearish and therefore advise you to prefer the short side of this market and sell back your longs.

E-Mini Crude Oil Futures Volatility Forecast (13/11/2010)

The drop experienced by this market seemed to have awakened some investors from their dreams. We stated the crude oil was about to retrace 2 weeks ago and we think it will continue because of 3 reasons:

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

2) The volatility was too low and an adjustment was “needed”

3) The seasonality patter of the crude oil has been delayed by the Fed announcement which caused the dollar to appreciate pushing further up crude prices

We believe the price will go even further down because the volatility could potentially achieve values around 2% -2.5 % (30% -35% annualised). However, if the equity markets keep going down many investors will start buying dollars and this event could maintain the price around $ 84 a barrel.

E-Mini Crude Oil Futures Volatility Forecast (07/11/2010)

The higher prices experienced by the crude oil are obviously driven by the performance that the US dollar registered lately.

Seasonally speaking the crude oil should decline rather than going up but, apparently, we are still in an uncertain situation. The staff of HyperVolatility remains bearish on Crude Oil for 3 resasons:

1) The rally which brought the Crude to $ 87 does not have the necessary fundamentals to justify such a price and it was obviously caused by the QE2 announcement which “manipulated” the value of the dollar

2) The last rally comes after a sideways movement of the market signalling that the last uptrend is the result of external forces

3) Volatility is increasing and so will do in the upcoming week  because it kept dropping since June. In fact, we went from readings around 28% to 11% in a fairly short period of time and it is reasonable to believe that an “adjustment is needed”

The staff of HyperVolatility remains bearish on the crude oil and therefore suggests to watch out your long positions.

E-Mini Crude Oil Futures Volatility Forecast (31/10/2010)

The last week we highlighted the great reliability that the seasonality chart has when it comes to crude oil and so far the price continued to replicate the same patterns showed over the last 30 years. In fact, according to the seasonal chart the crude oil price is expected to raise until the end of October  and then collapse and the volatility chart is confirming such a pattern.

The TGARCH volatility plot does not display anymore a downward sloping curve and it is clearly visible that the up move is now losing strength and the current sideways trading is more probably a reversal sign rather than an accumulation period. In addition, if we include an extremely lower volatility level to our seasonal forecast it is not surprising to see a scenario which is statistically more oriented towards a price drop which could take the E-Mini Crude Oil Futures around $ 70 a barrel.

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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