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VXN Index Volatility Forecast (30/08/2011)

The VXN Index opened at 42 on Monday, dropped to 35.4 on Tuesday, settled at 35.6 on Wednesday, rose to 39.4 on Thursday and closed at 34.4 on Friday.

The actual volatility is 12% (41.5% monthly) and the TGARCH plot is showing a volatility curve which has now created a double top and seems ready to continue its mean reverting journey towards the 4% level (13.8% monthly).   The very last part of the curve displays an insignificant retracement that was caused by fear and nervousness before Bernanke’s speech but that should not alter the overall process.

The HyperVolatility team is bearish the VXN Index because the large up move should start mean reverting at an increased pace over the next trading hours implying that, given the positive correlation between the Nasdaq100 implied volatility index and its stochastic volatility movement, we should see readings around the 30% threshold around Friday, macroeconomics news permitting.

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