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E-Mini S&P500 Futures Volatility Forecast (24/07/2011)

E-Mini S&P500 futures, like many other equity indices, rallied consistently throughout the entire week and retested the 1,345 – 1,350 area. The market opened at 1,300 on Monday, rose to 1,321 on Tuesday and remained to this level on Wednesday too but on Thursday it jumped up to 1,342 and closed at 1,340 on Friday.

The current volatility is 0.43% (6.8% annualised) and the TGARCH plot is evidently showing a situation that is not sustainable in the long term because the downward sloping curve has just touched one of the lowest levels in 5 months.

The volatility will probably start to mean revert over the next trading days and settle around the 0.6% – 0.65% area (9.5% – 10.3% in annual terms) which is the equilibrium point for the conditional variance in the medium term.

The American Index has been moving laterally since the middle of May and the price action has been consolidating for more than 2 months just below the resistance point placed at 1,350.

The HyperVolatility team is moderately bearish on E-Mini S&P500 futures because the conditional variance will almost certainly augment over the next hours bringing some more instability to futures prices.

We believe that, in the first half of the week, the Index will keep moving sideways with occasional attempts to break through the aforementioned resistance level; however, in the second half there should be a short term retracement, favoured by an increased confidence of bears, which will bring E-Mini S&P500 futures back down in the 1,310 – 1320 area by the next Friday.

E-Mini S&P500 Futures Volatility Forecast (10/07/2011)

E-Mini S&P500 futures moved sideways for 3 days but the positive expectations about macroeconomics news pushed the price all the way up before the occurrence of the final collapse that we all saw on Friday. Particularly, the market opened at 1,333 rose to 1,336 on Tuesday, moved back to 1,335 on Wednesday, jumped to 1,352 on Thursday and plummeted to 1,341 on Friday.

The current volatility is 0.6% (9.5% in annual terms) and the TGARCH plot is clearly displaying a downward sloping curve which is about to end its mean reverting process. Specifically, the conditional variance is likely to settle around the 0.45% – 0.5% level (7.1% – 7.9% annualised) which is the long term equilibrium point for this market.

It is worth noting that the plunge in volatility has been primarily caused by a sideways movement of the price action whilst the last part of the curve shows that the big jump occurred on Thursday increased the variance but the consequent price drop did not produce any effect.

The HyperVolatility team remains bearish E-Mini S&P500 futures because the next trading days should see more fluctuations even if the price should move laterally in the first half of the week. In other words, the volatility is expected to mean revert and then rise back. In particular, we believe that the augment in the conditional variance should drag E-Mini S&P500 futures back down in the 1,325 – 1,330 area.

Nevertheless, if the volatility curve, after reaching the equilibrium point, remains low we will reconsider our analysis and look at the long side of the market but the bad job reports we saw on Friday, the Portuguese’s sovereign debt downgrading and the imminent default of Greece should keep investors’ greed down.

E-Mini S&P500 Futures Volatility Forecast (04/07/2011)

The HyperVolatility team was right once again and our analysis proved extremely profitable and accurate also this week. The bullish view we had on E-Mini S&P500 futures has been confirmed by the price action and our last week profit target 1,290 has been largely surpassed: a wonderful trade indeed!!!

Specifically, E-Mini S&P500 futures opened at 1,276, rallied to 1,294 on Tuesday, settled at 1,304 on Wednesday and kept moving higher until the end of the week, in fact, on Thursday the closing price was 1,314 whilst 1,335 was the last price print on Friday.

The actual volatility is 0.73% (11.5% annualised) and the TGARCH plot is visibly showing a sharply downward sloping curve which implies that, over the next trading days, the mean reverting process of the conditional variance will probably end. Additionally, the volatility of E-Mini S&P500 futures should reach and consequently settle around the 0.5% – 0.55% area (7.9% – 8.7% in annual terms).

On the other hand, the price rally was way too fast and too quick and that is why we believe that the softening of the conditional variance will primarily be due to a sideways movement of the price rather than to an ulterior explosion of futures prices.

The HyperVolatility team remains sceptic about the reliability of the last week up move and we think that the variance will touch its balance point and then mean revert dragging E-Mini S&P500 futures back down in the 1,270 – 1,280 area.

E-Mini S&P500 Futures Volatility Forecast (27/06/2011)

The American Market moved up in the first 2 days of the week where 1,273 and 1,287 have been the last price print for Monday and Tuesday but as soon as the negative news started to spread amongst investors E-Mini S&P500 futures got dragged down to 1,279 on Wednesday, to 1,277 on Thursday and settled at 1,263 on Friday.

The actual volatility is 1.2% (19% annualised) and the present chart does not differ much from the volatility plot we showed 1 week ago implying that the volatility is still too high, that a mean reverting process is now a very statistically probable event and that the news released throughout the past week managed to keep high fear and panic amongst investors.

Also, the volatility curve is not upward sloping anymore and such a phenomenon is a strong signal which emphasises the fact that the down move of E-Mini S&P500 futures prices is now over and that the American Index is probably ready to recover.

The HyperVolatility team remains bullish this market because the decreasing volatility is going to back the price action and push futures prices back into the 1,290 area by Friday.

As it often happens in these cases the conditional variance moves quite slowly but when it starts to plummet the mean reverting process becomes extremely violent and fast. In other words, once the variance will start to drop seriously the price is likely to jump very aggressively.

E-Mini S&P500 Futures Volatility Forecast (21/06/2011)

The last week we were bullish E-Mini S&P500 futures but bad macroeconomics news changed the scenario and dragged the American index back down again. Specifically, the market opened at 1.271 on Monday, it rose to 1.289 on Tuesday but it then dropped to 1.265 on Wednesday and moved practically sideways for 2 days since that 1.269 and 1.265 have been the registered closing prices on Thursday and Friday respectively.

The volatility is now at 1.43% (22.6% in annual terms) and it is evident that the current level of the volatility curve, displayed in the TGARCH plot, is the highest point achieved by the conditional variance over the last 5 months.

However, the fact that the volatility curve is now so steep and the fact that the actual condition of the oscillation rate is probably unsustainable, even in the short term, are signalling quite evidently that the mean reverting process is on its way.

As we mentioned in our previous analysis the return of the volatility towards its balance level, which is around 0.6% (9.5% in annual terms), is going to be slow but constant at the beginning of the move but it will become fast and violent as the variance approaches the above mentioned level.

Thy HyperVolatility team is bullish E-Mini S&P500 futures because the decrease in the conditional variance is going to favour a recovery of the price which should retest the 1,290 – 1, 295 area by Friday, news permitting.

E-Mini S&P500 Futures Volatility Forecast (13/06/2011)

The last week we were bearish E-Mini S&P500 futures, we indicated the 1,265 – 1,270 area as a potential profit target and our volatility-based projection proved extremely accurate once again. In particular, the market opened at 1,285 it dropped to 1,277 on Wednesday and, although it touched 1,287 on Thursday, futures prices plummeted and settled at 1,269 on Friday.

The volatility is currently at 1.4% (22.2% annualised) and the TGARCH plot is visibly displaying a curve which is unusually high but it seems that the mean reverting process of volatility is already on its way.

The bad macroeconomics news that hit the market last week pushed the conditional variance to the actual level but the oscillation rate should now drop and point towards the equilibrium point which is around the 0.4% area (6.3% annualised).

The HyperVolatility team is moderately bullish on E-Mini S&P500 futures because the decreasing volatility should favour a recovery of the price during the next trading days.

However, a bit of a sideways play is not an eventuality to opt out particularly in the first half of the week but in the second half futures prices should head north once again and eventually achieve 1,290 by Friday.

We will constantly monitor the volatility and we will wait for a statistically reliable entry point because the progression of the mean reverting process is usually quite slow at the beginning but pretty violent at the end.

E-Mini S&P500 Futures Volatility Forecast (06/06/2011)

E-Mini S&P500 futures have been clearly hit by the panic which swept away equity markets. In particular, the market opened at 1,330 rose to 1,344 it then plunged to 1,313 on Wednesday and it closed to 1,295 on Friday.

The current volatility is 1.18% (18.7% in annual terms) and the TGARCH curve is now displaying a robust upward sloping curve which highlights that the down move of the price action was constant and far from being over.

The disappointing figures that have been released in the Non Farm Payrolls clearly pushed away many investors which are now looking for safer ways to invest their money and diversify their portfolios; occurrence that obviously augmented the selling pressure.

The conditional variance should probably augment over the next trading hours, although it already touched a very high level, and such a phenomenon will obviously drag E-Mini S&P500 futures down.

Furthermore, if we consider that both the VIX and the VXN are likely to remain at the same level and therefore to not retrace, the bearish scenario for this market seems to be the more likely to occur.

The HyperVolatility team is bearish E-Mini S&P500 futures because the oscillation rate did not show any recovery sign and the bad macroeconomics news are going to influence negatively many market participants.

We will place some shorts as soon as possible because we believe that futures prices should plummet to 1, 265 – 1,270 by the next Friday.

E-Mini S&P500 Futures Volatility Forecast (29/05/2011)

E-Mini S&P500 futures moved higher probably pushed by the great depreciation of the US dollar against the euro, the pound starling and the Japanese yen. Specifically, the market opened at 1,314 remained stable around this area for a couple of days (1,313 and 1,316 have been the closing prices on Tuesday and Wednesday respectively) but the Index moved higher on Thursday with 1,326 points whilst 1,330 was the final closing price on Friday.

The actual volatility is 0.9% (14.2% in annual terms) and the TGARCH curve is now displaying a clear mean reversion movement which will tend to push the conditional variance towards its equilibrium point which is set around the 0.6% area (9.5% annualised).

The drop in volatility is a clear signal that many investors and traders did not get rid of their long positions and that the rally we saw the last week was robust and probably destined to continue over the next hours.

The HyperVolatility team is bullish E-Mini S&P500 futures because the plunge in volatility should favour an ulterior recovery of the price which is likely to retest the 1,335 – 1,345 area by the end of the next week.

Furthermore, a plummeting VIX and a weaker dollar are contributing factors that are going to act as catalysts during the next trading days. In other words, they are probably going to accelerate the rise of futures prices.

E-Mini S&P500 Futures Volatility Forecast (23/05/2011)

The sideways movement E-Mini S&P futures went through the last week was efficiently captured by the analysis we posted one week ago. Nonetheless, the lateral movement has been followed by a drop but the magnitude of the plunge has not been as consistent as we thought.

The market opened at 1,325 it rallied to 1,338 on Wednesday, it moved even higher on Thursday (1,341) but 1,328 has been the settlement price on Friday.

The volatility is now at 0.78% (12.3% in annual terms) and the TGARCH plot is displaying a slightly downward sloping curve although the very last part of the chart seems suggesting a shy attempt of the oscillation rate to move higher again.

Clearly, the decrease in the conditional variance has been provoked by the sideways movement of futures prices and it is not attributable to a drastic market view of investors and traders.

The HyperVolatility team remains bearish on E-Mini S&P500 futures because it is quite likely that the volatility will spike up again over the next trading days and eventually achieve the 1% – 1.04% area (15.8% – 16.5% annualised) whilst futures prices should plummet once again and retest the 1,300 threshold.

However, once futures prices will have achieved the aforementioned support is quite likely for the price to move within a narrow range once again.

E-Mini S&P500 Futures Volatility Forecast (15/05/2011)

The last week we were bullish E-Mini S&P500 futures but the huge crash     that commodity prices experienced affected most of the equity indices and     the American one is not an exception. The market opened at 1,342 it dropped   to 1,338 on Thursday it rallied back up again to 1,347 but 1,334 was the closing price on Friday.

The volatility is now fluctuating around 0.8% (12.6% annualised) and, although the TGARCH curve is showing a downward sloping curve, there is a high probability that the next trading days will experience a high degree of market fluctuations.

In fact, the fall in volatility has accompanied a plunge of futures prices and this is not exactly the type of correlation which one might expect from E-Mini S&P500 futures which are notoriously instruments with a high leverage effect feature.

The HyperVolatility team is bearish on this market because the symmetric movement between volatility and price is not going to last long and it should be interpreted as a warning signal.

Specifically, we believe that the conditional variance will at first plummet and settle around 0.55% (8.7% annualised), causing the market to move sideways for a few days, but it will then jump back up again dragging down futures prices which should retest the 1,315 – 1,320 area by the next Friday.

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