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

The last week our bearish expectations have not been met and therefore we did not enter the market at all. In fact, E-Mini Nasdaq futures opened at 2,315 dropped to 2,309 on Wednesday but Thursday and Friday saw a steady and sharp recovery of the price in fact 2,326 and 2,333 have been the last 2 closing prices before the end of the week.

The actual volatility is 0.97% – 0.98% (15.3% – 15.5% annualised) and the TGARCH curve is aggressively downward sloping highlighting the fact that the up move in futures prices was robust and steady.

The volatility will try to mean revert towards its equilibrium point which is around 0.5% (7.9% in annual terms) and such a phenomenon should favour an ulterior recovery of the price at least in the short term.

The HyperVolatility team is moderately bullish E-Mini Nasdaq futures because the decreased market fluctuations rate is going to sustain the price action which could eventually achieve 2,340 points by the next Friday.

Nevertheless, we will enter the market only if the conditional variance keeps plummeting during the first trading hours but should not that be the case we would wait for a more statistically reliable opportunity to arise.

VXN Index Volatility Forecast (29/05/2011)

The last week we gave you a 2 way scenario where in the 1st case we would have seen a short term explosion of market fluctuations whilst in the 2nd a fairly stable and dropping volatility situation was described. Apparently, the 2nd forecast turned out to be the most relevant one. In fact, the VXN Index opened at 19.21% dropped to 18.16% on Wednesday and settled at 19.21% on Friday.

The current volatility is 5.7% (19.7% monthly) and the TGARCH plot is showing a continuous and persistent condition in which the conditional variance is low and trading within a very narrow range.

Evidently, the shy augment in Nasdaq Index futures provoked the oscillation rate to collapse sharply over the last 5 days and settle around the lowest level of the last quartile.

Although the situation seems to be a bit unstable we reckon that volatility can remain at a low level for an extended period of time without mean reverting and the central part of the plot (October and November 2010) transparently show such an eventuality.

The HyperVolatility team is moderately bearish on the VXN Index because the fluctuations of the Nasdaq Index’s implied volatility should flatten and possibly touch 14.5% – 15.3% by the next Friday. On the other hand, we remain highly suspicious that the current situation can keep going on and a VXN surpassing the 19% threshold would be a signal that something is about to change.

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

The Nasdaq Index, like many other equity indices, moved sideways and we managed to “capture” that movement in our previous’ week analysis although we were expecting a stronger bearish movement around Thursday or Friday. Specifically, the market opened at 2,334 rallied to 2,367 on Thursday and it dropped back to 2,345 on Friday.

The actual volatility is 1.98% (31.4% annualised) and the TGARCH plot is displaying a downward sloping curve which normally we would interpret as a bullish signal but in the reality the drop in the conditional variance has been obviously caused by the lateral movement of the price action.

The volatility curve will probably tend to complete the mean reverting process and touch the 0.8% level (12.6% annualised), phenomenon which is likely to accompany a further sideways movement of the price action, but by the end of the week we should see an ulterior explosion of the variance.

The HyperVolatility team is moderately bearish on E-Mini Nasdaq futures because the initial sideways movement of the market should anticipate a drop of the price which could retest the 2,305 – 2,310 area by Friday.

VXN Index Volatility Forecast (23/05/2011)

The VXN was expected to rise but the conditional variance of the implied volatility index did not move much from where it was the last week and the TGARCH plot is clearly displaying the aforementioned scenario.

The volatility is now around 4.8% – 5% (16.6% – 17.3% monthly) and the         curve is clearly downward sloping and during the upcoming days the variance could collapse and retest 4% (13.8% monthly) which is the equilibrium point but once touched this level it would not be surprising to see a further increase.

The Nasdaq Index largely moved in a very narrow range the last week and this clearly affected the oscillation rate which remained almost stable in the same area.

The HyperVolatility team is moderately bullish on the VXN Index because a mean reverting process could start any time during the next week but it is important to point out that usually volatility can stay at a lower level much longer than one might expect. Consequently, there are 2 possible scenarios:

1)    The volatility remains stable in the actual area and in this case we would have reading around the 4.1% (14.2% monthly) by Friday

2)    There is a short term explosion of the conditional variance which is going to push the VXN Index in the 22% area whilst its volatility should approach the 6.8% – 7% threshold (23.5% – 24.2% monthly)

We will monitor the situation very carefully because the sideways movement we saw the last week increased the uncertainty amongst traders and investors.

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

E-Mini Nasdaq futures were expected to rise but the massive drop in commodity markets pushed down most of the world equity indices including the Nasdaq. The market opened at 2,387 rose to 2,408 on Tuesday, on Wednesday it plummeted to 2,393 but on Thursday it rallied back to 2,408 and it closed at 2,371 on Friday: a really choppy week!!!

The volatility is around 0.78% – 0.8% (12.3% – 12.6% in annual terms) but the TGARCH plot is now displaying a downward sloping curve which should be carefully interpreted. The conditional variance has been trading in its lowest level for almost 1 month and it is reasonable to wonder: is this going to last forever?

Obviously, the answer is no and it is quite likely that a volatility explosion is going to manifest itself in the upcoming trading days. Furthermore, if we consider that the Hi-Tech Index is one of the most volatile equity indices in the world, it is evident that the current situation is unsustainable.

The HyperVolatility team is bearish on E-Mini Nasdaq futures because we believe that the increase in volatility will drag futures prices back into the 2,345 – 2,350 area by the next Friday.

However, a sideways movement should accompany the price action in the first half of the week and most of the action should be concentrated in the 2nd half.

VXN Index Volatility Forecast (15/05/2011)

The VXN Index went through an extremely choppy week where the sideways movement was the leading “feature” of the implied volatility of the Nasdaq Index. Specifically, the VXN opened at 18.3% dropped at 17.1% on Thursday but it suddenly rose to 18.3% on Friday.

The actual volatility is around 4.3% (14.5% monthly) and the TGARCH curve is now displaying a downward sloping curve which is clearly trying to complete the mean revert process and settle around the 4% level ( 13.8% monthly).

The last week we were expecting the VXN Index to head south and our forecast proved correct at least until Thursday because the Friday’s closing price was as extreme as unexpected.

The positive correlation between the stochastic volatility of the VXN and the implied volatility of the Nasdaq Index suggests that the next week is going to see an ulterior flattening of market fluctuations which should favour the underlying market. However, the volatility has been low for quite a while and we believe that the conditional standard deviation will soon explode and bring the VXN Index towards higher values.

The HyperVolatility team remains bullish on the VXN because the implied volatility Index is still trading within the last quartile and, at this level, an ulterior rise is much more probable than another drop. We believe that the VXN is going to decrease in the first half of the week and then suddenly rise up again because, by the next Friday, the implied volatility should achieve the 20% – 20.5% threshold.

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

The last week we set our profit target in the 2,365 – 2,370 area and our “expectations” have been clearly met since the Hi-Tech Index plummeted throughout the entire week.

E-Mini Nasdaq Futures opened at 2,402 on Monday but the bearish movement suddenly pushed the price down and the closing on Wednesday was around 2,384 whilst the definite confirmation of our analysis ‘accuracy came with the 2,373 points touched on Friday.

The actual volatility is around 0.78% (12.3% annualised) and the TGARCH curve is signalling that a decrease in the conditional variance could be a quite probable scenario in the upcoming days.

On the other hand, the augment of the volatility curve during the market drop was not that substantial and the current plot seems highlighting a fairly stable situation which should support the price action and an ulterior up move of futures prices.

The HyperVolatility team is bullish on E-Mini Nasdaq futures because the dropping volatility is going to enhance the probability of a steady recovery of the price.

Furthermore, the volatility of the VXN Index is likely to collapse over the next trading days and consequently futures prices should retest the 2,400 points by Friday.

VXN Index Volatility Forecast (10/05/2011)

The VXN Index was expected to surge and achieve the 19% – 20% level and effectively so it was. The implied volatility of the Nasdaq Index was at 18.1% on Monday 18.5% on Thursday but 19.2% was the closing price registered the last Friday.

The volatility is now 6.8% – 7% (23.5% – 24.2% monthly) but the TGARCH curve is still downward sloping implying that the mean reverting process is not over yet and that a decreasing volatility should be expected in the upcoming days.

Furthermore, the augment in market fluctuations has been clearly caused by the poor performance of equity indices but the right hand part of the plot is transparently highlighting that the down move of the underlying market is now over and. As a consequence, the implied volatility of the Nasdaq Index will plummet and settle around its equilibrium point which is around the 4% – 4.5% threshold (13.8% – 15.5% monthly).

The HyperVolatility team is bearish on the VXN Index because the implied volatility of Nasdaq options will decrease over the upcoming trading days and retest the 17% – 17.5% and such a phenomenon would favour a recovery of the underlying market price.

Additionally, once the conditional variance will have achieved its balance point it would not be surprising to have a sideways movement of the volatility around this level.

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

The 2,385 points profit target we had the last week has been achieved in the first day of trading and our analysis proved very useful once again. E-Mini Nasdaq futures opened at 2,385 rose to 2,402 and closed at 2,407 on Friday. An excellent trade indeed!!!

The volatility is now 0.61% (9.6% in annual terms) but the slope of the curve seems suggesting that the next trading days will be quite volatile because, at this point, a further increase of the conditional variance is far more statistically probable than an ulterior drop.

The chart clearly shows that the oscillation rate for E-Mini Nasdaq futures remained very low for a very long time and therefore the increase in volatility we previously mentioned would bring the curve back into the equilibrium point, which is around 0.8% (12.6% annualised) by dragging the market down.

The HyperVolatility team is bearish on this market because the extended low volatility “scenario” and the probable VXN Index rise are going to negatively influence futures prices which should plummet and touch the 2,365 – 2,370 by the end of the week.

VXN Index Volatility Forecast (02/05/2011)

The HyperVolatility team was right once again!!! We were expecting a further drop of the implied volatility of the Nasdaq Index and effectively so it was. Specifically, the market opened at 17.2% dropped to 16.2% but closed at 16.5% on Friday.

The current volatility is 5.1% (17.6% monthly) and the TGARCH plot is displaying a downward sloping curve highlighting the fact that a further decrease of implied volatility could characterise the first days of the week.

However, the mean reverting point has been achieved and the volatility of the VXN has been very low for quite a while implying that a short term explosion is a statistically probable event that should not be opted out.

Additionally, if we look at the chart it is easy to notice that the conditional variance of the Nasdaq Index’s implied volatility has been diminishing at a constant rate since March.

The HyperVolatility team is moderately bullish on this market because we believe that a short term augment of the conditional variance could push the VNX Index up once again. Explicitly, we believe that the TGARCH curve will achieve 7.5% – 8% (25.9% – 27.7% monthly) whilst the VXN is going to rise and touch 19% – 20% by the end of the week.

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