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E-Mini Crude Oil Futures Volatility Forecast (19/09/2011)

E-Mini Crude Oil futures opened at 88.8 on Monday, retested the 89.95 resistance on Tuesday, dropped to 88.55 on Wednesday, achieved 89.22 on Thursday and closed at 87.85 on Friday.

The actual volatility is 2% (31.7% annualised) and the TGARCH plot is showing a fairly stable volatility curve which is now trading within its medium term average. Nevertheless, the actual level is still extremely high if compared to the average volatility of this market and the fact that the curve is slightly upward sloping could imply that a higher fluctuations rate should be expected in the upcoming hours although the augment should not be critical.

The long term picture is still highly bearish and the fact that the conditional variance is now trading sideways on its equilibrium point could signal that an increased degree of market fluctuations should be expected in the upcoming trading hours.

The HyperVolatility team is bearish E-Mini Crude Oil futures because the volatility curve is probably going to head north in the next hours whilst the price should touch the 83-84 area by Friday.

Needless to say that the FOMC statement can change the overall picture but the high pressure on the Single currency is going to indirectly influence oil prices.

Euro Futures Volatility Forecast (19/09/2011)

Euro futures opened at 1.3653 on Monday, touched 1.368 on Tuesday, rose to 1.375 on Wednesday, jumped to 1.3881 on Thursday and settled at 1.3788 on Friday.

The actual volatility is 0.7% (11.1% in annual terms) and the TGARCH plot is evidently displaying a sharply downward sloping curve which is now trying to get back to the 0.6% level (9.5% annualised). However, it is worth noting that the volatility, at least over the last week, has been closely following the price action giving birth to a symmetric leverage effect although the big spike has been primarily caused by the big drop which dragged futures prices from 1.41 to the 1.37 area.

The great uncertainty which is surrounding financial markets is mainly due to Europe and its future therefore many traders will probably keep the exchange rate at historically low level unless concrete measures to avoid Greece’s default and prevent sovereign debt contagion will be taken.

The HyperVolatility team is moderately bearish Euro futures because the drop in volatility, in this case, will accompany a further depreciation of the Single currency against the Dollar. Therefore, the 1.3400 – 1.3450 threshold could be retested before the end of the week but the FOMC announcement on Wednesday could twist the scenario.

Swiss Franc Futures Volatility Forecast (19/09/2011)

Swiss Franc futures opened at 113.4 on Monday, rose to 113.6 on Tuesday, jumped to 114.1 onWednesday, achieved 115 on Thursday and settled at 114 on Friday.

The actual volatility is 0.81% (12.8% in annual terms) and the chart is manifestly signalling that the Swiss Bank intervention managed to prevent its currency from appreciaitng too much. However, the big drop in market fluctuations has been followed by a sideways movement of  the conditional variance whose curve is now slightly upward sloping but the situation is likely to remain so even during the next hours.

The intervention of the Swiss National Bank “distorted” the price action and the massive drop in price scared away many investors which are now reluctant to place large buy orders although the Swiss Franc stadily remains one of sa havens during equity market turmoils.

The HyperVolatility team is moderately bullish on Swiss Franc futures because a short term increase of the price is likely to occur even though there is a high probability of sideways movements. Hence, we believe that the 115 -116 threshold will be retested before Friday but a break through this level is quite unlikely because the concerns about an ulterior interference of the Swiss monetary authority would augment.

British Pound Futures Volatility Forecast (19/09/2011)

British Pound futures opened at 158.4 on Monday, dropped to 157.77 on Tuesday, closed at 157.71 on Wednesday, jumped to 158 on Thursday and settled at 157.9 on Friday.

The current volatility is 0.54% (8.5% in annual terms) but the volatility curve seems to have reached a mean reverting point and it looks like that the upcoming trading days will probably see a softening of market fluctuations. However, British Pound futures went through a bearish week, that caused the conditional variance to increase, and the fact that the volatility is now ready to decrease is signalling that the down move is likely to be over.

The fact that the conditional variance is still high means that some short term bursts are still possible, however, the overall week should see British Pound futures in a shy uptrend. Consequently, the 1.60 area could be eventually retested by the end of the week.

Finally, the FOMC statement on Wednesday remains the key event of the week and should be carefully monitored.

Japanese Yen Futures Volatility Forecast (19/09/2011)

Japanese Yen Futures opened at 129.1, rose on 130 on Tuesday, touched 130.45 on Wednesday, achieved 130.48 and closed at 130.1 on Friday.

The volatility is now 0.51% (8% annualised) and the TGARCH plot is showing a slightly upward sloping curve which seems to suggest that the upcoming trading hours will see an increase in the fluctuations rate which a consequent drop of the price action.

The concerns about Europe and the great uncertainty surrounding the destiny of Greece , which seems to be really on the brink of collapse, would probably push investors towards safe haven again, if they have ever left them at all, implying that the buying pressure could augment and lift Japanese Yen futures as well as the volatility curve.

The HyperVolatility team is bullish Japanese Yen futures because the symmetric effect between volatility and price action during turmoil is an indication that the buyers will probably get back into the game and purchase some more assets in order to diversify the risk of their portfolios. Hence, we believe that futures prices should increase and eventually retest the 132 threshold by Friday.

The FOMC statement on Wednesday could potentially change the picture should new monetary policies being released.

E-Mini S&P500 Futures Volatility Forecast (06/09/2011)

E-Mini S&P500 futures opened at 1,208 on Monday, tested the 1,204 level on Tuesday, achieved 1,219 on Wednesday, plunged to 1,201 on Thursday and closed at 1,169 on Friday.

The actual volatility is 1.52% (24.1% annualised) and the TGARCH plot is evidently displaying an upward sloping curve which seems suggesting that an ulterior augment in the oscillation rate should be expected over the next trading days. Obviously, last Friday’s market drop considerably influenced the fluctuations rate but it is worth pointing out that the mean reverting speed started to decrease well before Friday. Should the market keep plummeting we could see readings around the 2.5% (39.6% in annual terms) by Friday again.

The HyperVolatility team is bearish E-Mini S&P500 futures because the expected increase in the conditional variance is going to drag the price action back down into the 1,110 area by Friday.

It is worth pointing out that the situation could completely change should Obama or Bernanke announce a new fiscal/monetary stimulus package because many investors who got burnt after the August sell-off would probably get back to buy equities or increase their exposure to risky markets.

VIX Index Volatility Forecast (06/09/2011)

The VIX Index opened at 32.2 on Monday, rose to 32.8 on Tuesday, dropped to 31.6 on Wednesday, touched 31.8 on Thursday and closed at 33.9 on Friday.

The current volatility is around 8% (27.7% monthly) and the TGARCH plot is still showing a downward sloping curve which is still trying to complete its mean reverting process and settle around the 4% threshold (13.8% monthly). However, like for the VXN Index, the speed at which the curve was collapsing decreased significantly meaning that the selling pressure that hit the market on Friday had a significant impact on the implied volatility and consequently on the volatility of volatility.

The HyperVolatility team is bullish the VIX Index because its mean reverting speed diminished drastically and a short term burst of the conditional variance is expected to occur within this week.

Should the panic prevail once again we would, almost certainly, see the S&P500 implied volatility index to retest the 40% – 41% although Thursday’s speech will prove decisive in the medium term.

E-Mini Nasdaq Futures Volatility Forecast (06/09/2011)

E-Mini Nasdaq futures opened at 2,220 on Monday, touched 2,226 on Tuesday, rose to 2,246 on Wednesday, plummeted to 2,218 on Thursday and closed at 2,165 on Friday.

The actual volatility is 1.5% (23.8% annualised) and the TGARCH plot is now displaying a slightly upward sloping curve which should keep its upward trend over the next trading hours. The conditional variance, having found support around the 1.5% threshold, seems now ready to bounce back up again and eventually retest the 2% level (31.7% in annual terms) by Friday.

The HyperVolatility team is bearish E-Mini Nasdaq futures because a further increase in the conditional variance is quite likely to occur over the next trading hours.

The price action is likely to retest the 2,100 level by Friday and the fact that the VXN Index will experience an upward moves make this forecast even more reliable.

Maximum attention will be needed on Thursday because, as previously mentioned, Obama’s speech can radically change the overall market sentiment in a matter of a few hours.

VXN Index Volatility Forecast (06/09/2011)

The VXN Index opened at 32.1 on Monday, settled at 32 on Tuesday, dropped to 31.3 on Wednesday and remained at the same level even on Thursday but on Friday it closed at 33.

The actual volatility is around 7.9% – 8% (27.3% – 27.7% monthly) and the TGARCH plot is displaying a curve which is downward sloping and right in the middle of a mean reverting process. However, the speed at which the conditional variance tend to collapse towards its long term equilibrium point has substantially diminished because, particularly during the final stage of the above mentioned movement, the volatility tend to fall down much more quickly than it is and therefore this phenomenon should be interpreted as a warning signal.

The big and violent spike the volatility experienced on Friday (from 31% to 33%) is a great indicator for investors ‘nervousness. The volatility usually rises or declines gently but these unexpected and sharp jumps are clearly indicating that the situation is not looking good.

The HyperVolatility team is bullish the VXN Index because the decreased mean reverting speed and high fear will probably push the index towards the 35% by Friday.

On the other hand, the volatility could decrease and retest the 30% level if Obama is going to announce big changes in the fiscal policy measures.

DJ EuroStoxx50 Futures Volatility Forecast (06/09/2011)

DJ EuroStoxx50 futures opened at 2,258 on Monday, dropped to 2,245 on Tuesday, rose to 2,302 on Wednesday, plummeted to 2,276 on Thursday and closed at 2,205 on Friday.

The actual volatility is around 3.4% (53.9% in annual terms) and the TGARCH plot is displaying a curve which is trading sideways but that is fully back to the warning levels that have been achieved during the heavy sell-off that hit equity markets a few weeks ago. Also, it is worth noting that the mean reverting tendency of the volatility has been completely overwhelmed by a significant selling pressure which maintained the oscillation rate around readings that are historically very high.

The fact that the volatility is moving laterally, although extremely high, means that fear and uncertainty are still the predominant feelings amongst market participants and therefore the oscillation rate is likely to remain at this level even in the upcoming hours.

The HyperVolatility team is bearish DJ EuroStoxx50 futures because the conditional variance should increment over the next trading hours dragging futures prices back down in the 2,110 – 2,120 area by Friday.

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