GAFNN.com Blog

THE NON FARM PAYROLLS CAME OUT WORSE THEN EXPECTED THIS AM. THE CONSENSUS WAS 170K THE ACTUAL WAS 115K. WE LOOK FOR A DEVIATION OF 35K ABOVE OR BELOW THE CONSENSUS. IN THIS CASE THE NUMBER CAME OUT MORE THEN 35K BELOW THE CONSENSUS AND WE THEN EXPECT HEAVY SELLING IN THIS MARKET. LOOK FOR CONTINUE SELLING NEXT WEEK WITH DOWNSIDE TARGETS AT 1340.75, 1315.25 AND 1296.00.

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Tuesday 03/27/12 – Key Futures Trading Levels via CME Pit IQ

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Tuesday 03/06/12 – Key Futures Trading Levels via CME Pit IQ

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Tuesday 02/07/12 – Key Futures Trading Levels via CME Pit IQ

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Wednesday 02/01/12 – Key Futures Trading Levels via CME Pit IQ

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Tuesday 01/24/12 – Key Futures Trading Levels via CME Pit IQ

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Monday 01/23/12 – Key Futures Trading Levels via CME Pit IQ

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Tuesday 01/17/12 – Key Futures Trading Levels via CME Pit IQ

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Thursday 12/29/11 – Key Futures Trading Levels via CME Pit IQ

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Friday 12/16/11 - Online Access via Pit IQ

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The last week we forecasted an ulterior rise of German Bund futures whilst our profit target was set around the 125.5 – 126 area and our analysis proved very accurate and profitable. In fact, the market opened at 125.5 and plummeted to 124.9 on Wednesday but it recovered on Thursday when it touched 125.1 and closed at 125.9 on Friday

The current volatility is 0.36% (5.7% in annual terms) and the TGARCH plot is clearly displaying a very stable and robust curve once again meaning that it is probable that the upcoming week will see a prolonged period of low price fluctuations.

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The great uncertainty that characterised most of the equity markets pushed many investors and traders towards a safer type of investment and this resulted in increased German Bund futures prices.

The market opened at 125.1 and moved around this value for about 2 days but the final part of the week saw a sharp rise in price which at first brought German Bund futures to 125.5 euro whilst on Friday the price action remained almost unchanged; in fact, 125.59 euro was the final closing price.

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The HyperVolatility team was right once again. The German Bund was expected to rise and retest the 124 euro target and effectively the market opened at 124.2 dropped at 124 on Wednesday and then closed at 124.6 euro on Friday.

The current volatility is 0.36% (5.7% annualised) and the TGARCH curve seems to have touched the equilibrium point implying that a potential short term explosion of the conditional variance is not an eventuality to opt out.

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The German Bund futures rose substantially the last week although our forecast suggested a shorting strategy. Particularly, the price opened at 122.5 euro dropped to 122.1 but then rallied to 122.9 on Friday.

The actual volatility is now around 0.41% (6.5% annualised) and the TGARCH plot is showing an upward sloping curve which seems highlighting the fact that more uncertainty could be expected in the upcoming days because the volatility is going to increase.

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German Bund futures rose as we expected and stayed into the 122 euro area for the entire week but it is important to point out that most of the movement was a reflection of the fact that prices gapped up remarkably on Monday

 

Specifically, the closing price was 122.4 on Monday, whilst on the 15^th of April futures closed at 121.2, during Tuesday and Wednesday futures kept decreasing and touched 121.8 but 122.2 was the closing price on Thursday.

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The last week we forecasted a bearish price movement which would have turned into a bullish market if the volatility had remained stable. Though, the volatility plot displays a sharp explosion of the conditional variance which accompanied a boost of Bund futures from 119.9 to 120.7 euro.      

The actual TGARCH curve is showing a mean reverting process whose value is close to 0.38% (6.03% annualised) and it is quite likely that over the next trading days the conditional variance will keep diminishing. As a consequence, the German Bund could rise once again because the volatility curve will try to get back into the 0.34%area (5.3% in annual terms).

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The staff of HyperVolatility was right once again!!! Bund futures indeed decreased as forecasted and closed at 121.8 whilst our analysis suggested a closing price around the 121.5 euro.

The volatility is now sharply diminishing and the actual value is fluctuating around 0.43% (6.8% in annual terms) but the curve is still heading south highlighting an anomaly. In fact, the violent drop in price which experienced this market, at least in the last trading session, should have provoked a rise in market fluctuations but the plot does not report any substantial change.

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The market rallied to 123.7 and then retraced towards 122.7 euro by the end of the week: what a wonderful trade!!! We entered some longs since the beginning of the week and closed all our positions as soon as the market opened on the 17^th.

The volatility is now at 0.58% (9.2% annualised) but the great explosion that accompanied the surge in price is a warning signal. Specifically, a downward sloping curve should be interpreted in a different way and the diminishing market volatility, at least in this case, should highlight the return of German Bund futures to a down trend.

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