GAFNN.com Blog

The bearish view we had on the VXN Index paid off, although we were expecting a more robust movement, since the market opened at 20.05% dropped to 19.32% and closed at 19.76% on Friday.  

The current volatility of the VXN Index is 5.3% - 5.6% (18.3% - 19.4% monthly) and the TGARCH curve shows, once again, a downward sloping curve which is probably going to bottom around 4% - 4.5% (13.8% - 15.5% monthly).

The conditional variance of the VXN Index is visibly close to its equilibrium point and therefore an ulterior down move of the Index should be the most likely scenario for the next trading days.

The last week we were expecting an ulterior rise of E-Mini Crude Oil futures prices and our profit target was set to be at $ 110. However, our quantitative analysis proved even more profitable because futures prices touched $ 113 on Friday.    

The actual volatility is 1.48% (23.4% in annual terms) but the chart is displaying a situation which is quite steady, in terms of volatility fluctuations, and such a scenario seems stressing a probable further rise of futures prices.

Nonetheless, the rise would not be that powerful because once achieved the $115 - 115.5 area the volatility should increase and bring some sideways movements that would destabilise the price action.

The HyperVolatility team is moderately bullish on E-Mini Crude Oil futures but we believe that a retracement is on its way, hence, the more the market goes up the higher the instability. Even in this case the volatility curve is inevitably going to indicate the time to close out the long positions.
Furthermore, the tensions in Libya are still generating concerns amongst investors but extremely high oil prices could irremediably shrink the demand and we think that the OPEC will act in order to prevent this from happening.

Finally, the depreciation of the US dollar acted as a catalyst in the recent rally and a short term depreciation of the Euro would drag prices down once again.