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

The last week we forecasted a violent retracement of the hi-tech index which would have brought futures prices to retest the 2,100 area and our projections proved even more profitable because the market settled well below that level.  E-Mini Nasdaq futures opened at 2,039 on Monday, achieved 2,154 on Tuesday, dropped to 2,085 on Wednesday, jumped to 2,158 on Thursday and closed at 2,177 on Friday.

The actual volatility is 3.4% (53.9% in annual terms) and the TGARCH plot is showing a volatility curve which is downward sloping and whose mean reverting process has already begun. The conditional variance should decrease, over the next trading days, and probably settle around the 1% area (15.8% annualised).

The big buy pressure that the market experienced in the last 2-3 days and the plunge in volatility, which is now starting to become more and more evident, are clear signals that many investors and traders are trying to collect as many shares as possible in order to profit from a potential return of the index to regularity.

The HyperVolatility team is bullish E-Mini Nasdaq futures because the oscillation rate is likely to continue its journey towards its equilibrium point whilst the price action is going to be backed by a decrease in its fluctuations rate. Furthermore, the VXN Index is now starting to mean revert and such a phenomenon should be an additional positive factor for the recovery of futures prices. We believe that the 2,260 – 2,275 points will be achieved by the next Friday, credit rating agencies permitting.

VXN Index Volatility Forecast (14/08/2011)

The HyperVolatility team forecasted a sharp increase in the VXN Index fluctuations, which is clearly evident from the chart, and according to our projections the Nasdaq’s implied volatility index was expected to touch the 38% – 40% area: our target was not only met but even surpassed. The VXN Index opened at 44.7% on Monday, dropped to 34.6% on Tuesday, touched 41.7% on Wednesday, plunged to 37.8% on Thursday and closed at 35.2% on Friday.

The current volatility is 16% (55.4% monthly) and the TGARCH is displaying a curve which is now trading sideways but that is very likely to mean revert and collapse towards the long term equilibrium point which is stable around the 4% level (13.8% monthly). The volatility reached its highest level, which was firstly tested during the “second phase” of the credit crunch in May 2010, and the fact that the conditional variance, in the 2010, started to collapse soon after having touched this point is an ulterior signal which confirms the mean reverting hypotheses we stated above.

The market should now recover for a while meaning that many people will start buying most of the shares that are now ridiculously cheap and the implied volatility in the Nasdaq’s option market should settle and retrace towards normality.

The HyperVolatility team is bearish the VXN Index because its stochastic volatility is indicating a retracement which is the initial part of the mean reverting process. The VXN Index is likely to plunge over the next hours and eventually settle around the 24% – 25% by the next Friday.

However, the way down will not always be neat and clear because some very short term bursts of the volatility could make the curve looks less even but, overall, there should not be further upward explosions.

E-Mini Nasdaq Futures Volatility Forecast (08/08/2011)

The hi-tech stocks Index plummeted very violently for 10 days in a row. In fact, E-Mini Nasdaq futures opened at 2,346 on Monday, dropped to 2,288 on Tuesday, settled at 2,303 on Wednesday, plummeted to 2,212 on Thursday and closed at 2,190 on Friday.

The current volatility is 1.9% (30.1% annualised) and the TGARCH chart is visibly showing a volatility curve which, although extremely high, is still upward sloping meaning that the next trading days could see an even higher degree of market fluctuations.

The US debt concerns and the slow growth of the American economy badly affected Nasdaq’s performance as well and the fact that the conditional variance is now trading in its highest quartile in 5 months does not really mean that it is ready to retrace towards the long term equilibrium point.

The HyperVolatility team is very bearish on E-Mini Nasdaq futures because the fluctuations rate is very high and likely to remain there, investors’ fear is palpable and hi-tech stocks are quite risky and volatile. Therefore, many market participants will probably shift their money towards more secure assets in order to avoid unexpected and unwanted surprises.

E-Mini Nasdaq futures, given the actual volatility rate, will plunge all week long and probably retest the 2,100 area by Friday.

Nevertheless, there might be some very short term retracement of the price but, in this market, they would probably be bull traps.

VXN Index Volatility Forecast (08/08/2011)

The massive drop in all equity indices clearly did not leave the Nasdaq untouched and consequently its implied volatility. The VXN Index opened at 24.2% on Monday, rose to 25.7% on Tuesday, dropped to 24.7% on Wednesday, jumped to 31.6% on Thursday and closed at 33.7% on Friday.

The actual volatility is 11% (38.1% monthly) and the TGARCH plot is displaying a volatility curve which has now touched one of the highest points ever achieved by the VXN Index since the beginning of the 2010.

Moreover, it is important to point out that the very last part of the curve is extremely steep and there are no any signs of weakness implying that the next trading days could see even wider fluctuations of the implied volatility.

The implied volatility of Nasdaq Index will probably keep rising over the next trading hours because many investors will keep buying options in order to protect their stock portfolios and that’s why we think that a mean reverting movement towards the 4% level (13.8% monthly) is an eventuality more likely to occur the next week.

The HyperVolatility team is bullish the VXN Index because the volatility curve is still upward sloping and investors’ fear is pretty high.

The VXN Index should eventually retest the 38% – 40% area by Friday but the most volatile days will be probably concentrated in the first half of the week.

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

E-Mini Nasdaq futures opened at 2.423 on Monday, moved to 2.424 on Tuesday, dropped to 2,360 on Thursday and closed at 2,363 on Friday.

The current volatility is 1% (15.8% annualised) and the TGARCH plot is showing a slightly upward sloping curve which is trading within a very high range although still pointing towards the 1.1% level (17.4% in annual terms). However, it is worth noting that the volatility chart of E-Mini Nasdaq futures is very similar to the DJ EuroStoxx50 futures one because the conditional variance began to increase in April, softened in June but now seems ready to rally once again.

However, it is worth noting that E-Mini Nasdaq futures are close to the 2,450 resistance level which is a pretty strong psychological point for investors and traders because it has never been fully violated in the last 2 years.

The HyperVolatility team is bullish E-Mini Nasdaq futures, although there might be some short term volatility explosions that could keep the price action down in the first half of the week. Nonetheless, the mean reverting process of the volatility should push the conditional variance down favouring a recovery of the price which could eventually retest the 2,430 – 2,435 threshold by Friday.

VXN Index Volatility Forecast (02/08/2011)

The VXN Index opened at 20.95% on Monday, rose to 21.58% on Tuesday, jumped to 24.7% on Wednesday, achieved 25.12% on Thursday and closed at 26.08% on Friday.

The actual volatility is 8% (27.7% monthly) and the volatility plot is displaying a curve which is now trading at one of the highest levels since April 2011 although the very last part of the curve shows a shy attempt to mean revert and begin its journey towards the 4% threshold (13.8% monthly) which clearly is the long term equilibrium point.

The VXN Index rose over the panic that many investors and traders are now sharing regarding the US debt ceiling and the upcoming macroeconomics news that will be released in the next days.

The HyperVolatility team is bearish the VXN because the positive correlation between the Nasdaq’s implied volatility index and its stochastic volatility measurement is a strong enough indicator which is signalling that a softening of the conditional variance will drag the VXN back down in the 17% – 18% area by Friday.

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

E-Mini Nasdaq futures had a very bullish week since the market headed north most of time despite a beginning a bit more uncertain. Specifically, futures opened at 2,340 on Monday, jumped to 2,391 on Tuesday, retraced to 2,381 on Wednesday, flew to 2,410 on Thursday and closed at 2,428 on Friday.

The volatility is now 0.8% (12.6% annualised) and the TGARCH plot seems suggesting that the upcoming hours will see a further flattening of the conditional variance because the volatility curve is evidently downward sloping.

The mean reverting process of the volatility should terminate once the readings will get around the 0.73% – 0.75% area (11.5% – 11.9% annualised) and then move sideways for a while before attempting to get back up again.

On the other hand, the index is very close to the highest level ever achieved by futures prices over the last 2 years (that is 2,430) and it is reasonable to think that some sideways play is going to take place in the first half of the week whilst in the second one we could see some retracements going on because many bears will definitely try to push the index back down again.

The HyperVolatility team is moderately bearish E-Mini Nasdaq futures because, although a lateral movement of the price is going to dominate the first days of the week, we are waiting for a short term rise of the conditional variance which is probably going to push futures towards the 2,340 area again.

However, the decrease in price should not be particularly strong or violent but rather constant and calm with occasional augment in the selling pressure around the 2,400 area.

VXN Index Volatility Forecast (24/07/2011)

The VXN Index moved dropped consistently over the last week: the market opened at 22.4% on Monday, plummeted to 20.4% on Tuesday, touched 21% on Wednesday, dropped to 19.7% on Thursday and settled at 19.1% on Friday.

The current volatility is 6.2% (21% monthly) and the TGARCH plot is again displaying a volatility curve which is definitely downward sloping and still in the middle of a mean reverting process which will end once the long term equilibrium point, 4% – 4.5% (13.8% – 15.5% monthly), will be achieved.

The medium term trend remains bearish because the VXN should probably plummet to 16% – 17.5% in 15 – 20 days time but over the next trading days the mean reverting process, favoured by the lighter volume that summer months usually bring, is likely to continue its journey towards stableness.

The HyperVolatility team is bearish the VXN because the implied volatility of the Nasdaq Index is clearly going to head south although the process is not sure that is going to end its movement by the next Friday.

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

E-Mini Nasdaq futures opened at 2,365 rose to 2,370 on Tuesday, closed to 2,375 on Wednesday, jumped to 2,416 on Thursday and settled to 2,408.5 on Friday.

The actual volatility is 0.24% (3.8% annualised) which is the lowest level ever achieved by the conditional variance in the last 5 months and, although the curve is evidently downward sloping, it is almost sure that the next trading days will see a mean reverting process of the oscillation rate which will “try” to get back to its equilibrium point; that is 0.8% (12.6% in annual terms).

The huge drop in volatility is a clear sign that the buying pressure was extremely high and that almost all investors and traders did not place any substantial short position.

However, an augment of volatility over the next trading days it’s practically sure, since the actual rate is almost close to 0, and that’s why the bearish view remains unchanged even for the upcoming week.

The HyperVolatility team, as previously mentioned, is bearish E-Mini Nasdaq futures because the conditional variance will definitely augment over the next hours and such a phenomenon will probably drag the price back down in the 2,345 – 2,350 area.

However, should the volatility fluctuates around the actual values we won’t enter the market at all but, statistically speaking, this is an eventuality which should be opted out.

VXN Index Volatility Forecast (10/07/2011)

The last week we were bearish the VXN Index and we forecasted a drop of its volatility which would have, in turn, caused the Nasdaq’s implied volatility index to retrace and test the 13% – 14.5% area. Our target was not “hit” because the index settled at 17.4% but the bearish projection proved very accurate.

The VXN Index opened at 17.7% rose to 17.8% on Wednesday, dropped to 17.7% on Thursday and closed at 17.4% on Friday.

The actual volatility is 4.2% (14.5% monthly) and the TGARCH plot is evidently displaying a slightly downward sloping curve which will keep decreasing over the next hours and settle around 4% (13.8% monthly) which is the long term balance point for this market.

The conditional variance dropped quite significantly because the first days of the week saw a prolonged lateral movement of the underlying asset but what is really important to stress out is that Friday’s announcement left completely unchanged the volatility curve.

The HyperVolatility team remains moderately bearish on the VXN Index because the oscillation rate should decrease and then move sideways all week long. Specifically, the implied volatility index should touch 17% – 17.2% and trade within this range until the next week.

However, if the Index surpasses the 17.7% threshold we would probably interpret that movement as a bearish signal for all major equity indices.

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