VXN Index Volatility Forecast (24/07/2011)

The VXN Index moved dropped consistently over the last week: the market opened at 22.4% on Monday, plummeted to 20.4% on Tuesday, touched 21% on Wednesday, dropped to 19.7% on Thursday and settled at 19.1% on Friday.

The current volatility is 6.2% (21% monthly) and the TGARCH plot is again displaying a volatility curve which is definitely downward sloping and still in the middle of a mean reverting process which will end once the long term equilibrium point, 4% – 4.5% (13.8% – 15.5% monthly), will be achieved.

The medium term trend remains bearish because the VXN should probably plummet to 16% – 17.5% in 15 – 20 days time but over the next trading days the mean reverting process, favoured by the lighter volume that summer months usually bring, is likely to continue its journey towards stableness.

The HyperVolatility team is bearish the VXN because the implied volatility of the Nasdaq Index is clearly going to head south although the process is not sure that is going to end its movement by the next Friday.

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