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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