Disclaimer: this is not investment advice. Some of the content in this email is generated with the help of artificial intelligence. For the love of all things robotic, please do your own due diligence.

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GM. With the help of my good friend ChatGPT have put together some more original content for you all; seasonality analysis and price forecasting of the volatility index (VIX). Let me know what you think.

— Reuben

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💸 In Today’s Newsletter

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📰 Market Movers

• Asian shares are mixed this morning and European futures price lower while US futures are flat.

• UK Consumer Confidence fell on Friday for the first time in 6 months but UK Retail Sales increased by 0.7%, higher than expectations which were 0.2% and last month’s print which was -0.1%.

• American Express fell 3.9% after reporting doubling loan loss provisions by $1.1 billion in the first quarter of 2023, compared to the same period last year, in the earnings report on Friday.

• Verizon, Google, Visa and Microsoft all report earnings on Tuesday and AT&T, Meta, Coca-Cola and Ebay report earnings on Wednesday.

• Euro Zone and US base rate decisions are coming up this week, with the ECB meeting on Thursday and Fed on Wednesday. Both are expected to hike 25bps. The markets will be focussed on any forward guidance regarding potential future hikes as inflation begins to show signs of easing. It is currently expected that this will be the last rate hike for both.

• The Bank of Japan meets on Friday for an interest rate decision and are expected to keep the low-rate environment unchanged. The Nikkei 225 is up 1.1% today and USDJPY was up over 1% on Friday to 141.8 with the dollar easing slightly this morning to 141.5.

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📊 Data Display

TL;DR: there is statistically significant seasonality in VIX with higher values typically observed in October, March and November, while lower values are seen in July, April and May. ChatGPT price forecasts suggest that the VIX has already bottomed this year.

The CBOE volatility index (VIX), which measures the price volatility of the S&P 500, is currently at 13.60, which is pretty much the lowest it has been since the onset of the Covid-19 pandemic (the actual low is 12.73 reached in June this year).

There’s recently been a fair bit of news flow to this effect, specifically calling out seasonality in the VIX index which implies that it is normally low this time of year, and might increase towards the tail end of 2023.

So, I decided to see if that is true, using my good friend ChatGPT.

The below analysis uses daily closing price data for the CBOE Volatility Index from 02/01/2004 to 21/07/2023, which has been inputted into ChatGPT’s Code Interpreter. You can see the prompts I used here (they are not fancy - I found it easier to ask simple prompts and chain them together as otherwise the response would time out).

VIX Seasonality (2004-2023)

After removing the trend, seasonality is found with some residual noise.

Historic seasonality implies that the “worst-performing” i.e. least volatile month is July and the most volatile month is October.

I asked ChatGPT to measure whether the seasonal variance is statistically significant or not.

ChatGPT then performed a Ljung-Box test to confirm that the seasonality is statistically significant with a p-value <0.05. Nice.

Given the above analysis, what is the predicted price for the VIX index for the rest of the year?

It took a bit of prompt work, but ChatGPT eventually came up with this, implicitly suggesting that the VIX has bottomed and will be moving higher for the rest of the year.

This may seem counter-intuitive at first given historical seasonality suggests August should be a down month for the VIX index; however, the future predictions use a number of factors including recent trend which is much higher than current values (it is actually around 21) and therefore pulls the forecasted values higher from the offset.

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📈 Bitcoin Bot (Beta)

Today’s trade: Buy Bitcoin at $29,790.04

For today’s long (buy) position:

• The stop loss would be set at $29,474.08, which is approximately 1.06% below the current price.

• The take profit would be set at $30,263.99, which is approximately 1.59% above the current price.

Rationale:

1. Moving Averages (MA): The signal is bullish because the 7-period moving average is greater than the 21-period moving average.

2. Relative Strength Index (RSI): The signal is neutral because the RSI is neither below 30 (oversold condition) nor above 70 (overbought condition).

3. Bollinger Bands: The signal is neutral because the closing price is not near the upper or lower band.

4. Moving Average Convergence Divergence (MACD): The signal is bullish because the MACD line is above the signal line.

5. Stochastic Oscillator: The signal is neutral because %K (slowk) is neither below 20 (oversold condition) nor above 80 (overbought condition).

6. On-Balance Volume (OBV): The signal is bearish because the OBV is decreasing, indicating that volume is heavier on down days.

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