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VIX Index Volatility Forecast (19/09/2011)

The VIX Index opened at 38.59 on Monday, dropped to 36.91 on Tuesday, plunged to 34.6 on Wednesday, settled at 31.97 on Thursday and closed at 30.98 on Friday.

The current volatility is 7.5% (25.9% monthly) and the TGARCH chart is showing a volatility curve which is quite close to its long term equilibrium point and therefore about to complete its mean reverting process. The last week saw some ups and downs in volatility, which are evident in the very last part of curve, but a break through the 7% level (24.2% monthly) should signal an ulterior drop of the oscillation rate and a potential settlement of the latter around the 4% threshold (13.8% monthly).

The HyperVolatility team is moderately bearish the VIX Index because the overall movement is still pointing towards a total retracement of the volatility towards it long term equilibrium point. Consequently, the VIX should touch the 25% area by the next Friday but, given the actual market conditions, short term bursts of the volatility are very likely to occur.

Even in this case the FOMC statement is going to play a key role.

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