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VXN Index Volatility Forecast (18/04/2011)

The last week we were bearish on the VXN Index and our analysis proved accurate once again. In fact, the market opened at 19.09% dropped to 18.5% and closed on 17.48% on Friday.

The actual volatility has now achieved the bottom and it is currently trading around 4% (13.8% monthly). However, the decrease in the VXN was quite smooth and without short term retracements that make the current figure both quite suspicious and unstable.

Particularly, the volatility of the VXN is likely to mean revert over the next trading days and therefore more market fluctuations are expected in the market implying that the VXN Index could achieve 20% whilst its volatility should get back up again in the 7% – 8% area (24.2% – 27.7% monthly).

The HyperVolatility team is bullish on the VXN Index because an explosion in market fluctuations seems to be the most likely scenario. Consequently, any short volatility positions should be closed or heavily hedged in order not to get hit by unwanted and wild market swings.

Moreover, the Nasdaq100 Index will inevitably be affected by such a phenomenon and we believe that the Hi-Tech Index will experience some sharp retracements.

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