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VXN Index Volatility Forecast (06/06/2011)

The last week we were bearish the VXN Index but the great deal of uncertainty, the light volume, the bank holiday and the massive amount of macroeconomics news that have been released lifted the implied volatility of the Nasdaq Index. In fact, the VXN opened at 16.4% rose to 18.7% on Thursday and closed at 18.9% on Friday.

The current volatility is 8% (27.7% monthly) and the TGARCH plot is displaying a steep increase of the conditional variance which is followed by a shy drop. However, the plummet that is barely visible at the right hand part of the volatility chart has been mainly caused by the lateral movement of the oscillation rate occurred during the last 2 days of the week.

Consequently, the reduced amount of market fluctuations cannot be interpreted as a sign of market recovery, although in the medium term the curve will inevitably tend to mean revert towards 4% (13.8% monthly).

The HyperVolatility team remains fairly sceptic about a steady decrease of the oscillation rate in the upcoming days because the disappointing unemployment figures and the renewed concerns for the slow growth rate of the global economy will probably tend to increase the volatility.

Consequently, we are bullish the VXN Index and we expect it to achieve the 19.5% threshold by the next Friday.

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