Markets: Energy Futures Still On the Rise!? Volatility High Again

by Francesco Placci

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An action-packed week for equity indexes, with returns close to zero and volatility still high in both the short and long term. Fortunately, it seems that the volatility term structure is coming back into control, although the situation remains complex. 

Among the markets that closed on an upward trend were, as usual, the energy sector, with new all-time highs for Gasoline and positive returns on all other markets (with obvious consequences on the current inflationary situation we are experiencing).

Worthy of note are also the performances of Cocoa and Soybean (which is close to the highs). 

Finally, we would like to point out the recovery of the euro against the dollar, which in just 5 days has gained over 2.5%, taking it to over the highs of the last 2-3 months. 

If you want to learn more about what happened on the markets this week and know the details of the volatility situation, do not miss our weekly report!

Enjoy the video!

Transcription

Hey everyone, and welcome to the usual chat about the most important market trends of the week that we have every weekend. I'm one of the coaches of Unger Academy.

Well, it was another busy week for stock indexes. In the first sessions, they went up quite a lot, while they had a slight setback in the last two sessions.

Volatility levels were quite high also this week, and the returns are close to zero, especially on the American markets. We see +0.50% rise for the Nasdaq. And +1% for the Mini S&P, which is the one that earns most of all. On the other hand, the European stock indexes were negative.

However, the volatility levels of all the stock markets are very high this week, both in the short term (we are at the hundredth percentile) and, as you can see, even over a longer time horizon, where volatility is also very high. We can also see this by looking at the standard deviation chart. This is the Nasdaq, and if we take a look at the Mini S&P 500, we can also see pretty high volatility values, and the same goes for the European stock exchanges.

Volatility remains high also in the bonds market. This week, this sector was negative, again.

As you can see, the bond futures are going through a period of weakness. This is the American T-Bond. Ans here's the European Bund, which is also very weak. Just look at those red candlesticks it made in the last two sessions. However, precisely because of this downtrend, we can see positive returns on the German ten-year bond again.

And for a change, the best market of the week is... the energy sector. In fact, RBOB Gasoline continued to break through its recent highs and climbed by 6% this week. Natural Gas, Heating Oil, and Crude Oil also went up a lot. All these markets performed very well, so the raw materials continue to rise. And we all know how this rise in the prices of the raw materials, and in particular in the energy sector, is one of the causes of the inflation situation we are currently experiencing.

The Metals sector also went up this week, although with fairly marginal returns. Here is Silver, and here is Platinum. Copper did a bit better, but as you can see, these markets are still pretty weak.

The Meats sector, instead, went up and made some very good returns this week. I mean, Lean Hogs did +4.79%. Feeder Cattle +4%, while the Live Cattle is a little further back.

The soft commodities sector is generally positive. The only negative future is the Orange Juice, which after rising tremendously for some weeks, has gone down over the last few days.

The soft commodity that performed the best this week is Cocoa, which gained over 6.5%.

On the other hand, we see some mixed returns in the Cereals sector. Among the best performers, we can find soy and its derivatives, so Soybean Meal and Soybean itself, which is close to getting to its highs.

Among the negative markets in this sector we see Corn, which loses 3.5%, and Wheat.

As for the currencies, we had a general recovery against the dollar this week. The Euro, in particular, recovered against the dollar and is now gaining over 2.5%, so this was a really very powerful rebound. It's moved close to the highs of the last two or three months, and it did it in just 5 days.

Now let's take a look at cryptocurrencies. Also this week, Bitcoin remained around the same price level, so in this week it was quite sideways, let's say.

We know that this level represents an important support level for this market, and for the moment, this support seems to resist. So, you know, let's wait and see if the fall of Bitcoin, which as you can see is going through a well-defined bearish trend, will stop at this level or will break through it.

As for volatility, we've already talked about it at the beginning of this video. So we know that the stock indexes volatility is currently at the highs both in the short and in the long term.

Actually, we can say that it's pretty high in all sectors. However, if we look at the implied volatility - so the volatility that's derived from the prices of the options on the S&P 500 index - we can see that the term structure has a very particular shape. As a matter of fact, at the moment we are in a sort of mixed condition.

Although we are in contango now, as you can see, we've recently been in backwardation. Volatility has gone down a little bit, so now we are in a particular situation, a sort of a halfway condition between contango and backwardation. 

The Vix index is at medium levels now, after going down from the peaks it had recently reached. In fact, it almost touched a value of 40. Anyway, since the market seems to be still quite unstable, we should definitely keep an eye on the situation. 

In fact, this kind of term structure testifies to the fears that the operators have about the immediate trend of the stock indexes.

Now let's move on to the rollover calendar. We have got three rollovers to do next week. We'll start on February 8 with the Cocoa future. Then on the 9th, we'll roll the Vix Future, and finally, on the 10th, we'll roll the Coffee future.

And with that, our weekly overview of the markets is over. If you are interested in investing in the markets with a systematic approach, just like we do here at Unger Academy, I have an interesting resource for you. You'll find the link in the description of this video.

It'll take you to a page from where you'll be able to access a free webinar by Andrea Unger, who will introduce you to the world of systematic trading. From that same page, you'll also be able to get our book, "The Unger Method," by covering only the shipping costs. Finally, if you want to, you can also book a free call with one of our tutors to get a free strategy session.

And before saying goodbye, I ask you to please leave us a Like if you enjoyed this video and subscribe to our channel to stay updated on the release of all our new content.

Thank you so much for watching. I will see you next week, bye-bye!

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Francesco Placci

Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.

My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.

After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.

Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.