E-Mini Nasdaq Futures Volatility Forecast (04/07/2011)

Our last week forecast proved to be one of the most profitable we have ever made. We were expecting the market to rally and we set our profit target at 2,260 but E-Mini Nasdaq futures passed our threshold in the second day of the week turning our bullish projection in a solid winning trade.

E-Mini Nasdaq futures opened at 2,250, rallied to 2,284 on Tuesday, rose to 2,294 and kept heading north until the end of the week because 2,319 and 2,354 have been the last price prints registered on Thursday and Friday respectively.

The current volatility is 1.13% (17.9% annualised) and the TGARCH plot is now displaying a downward sloping curve which is going to end its mean reverting process, most probably, around the 0.6% – 0.7% area (9.5% – 11.1% in annual terms). Consequently, the sharp rise in futures prices has to be considered fairly robust; hence, the next trading hours should see a flattening of price oscillation.

The HyperVolatility team remains sceptic about the reliability of such a price increase for one simple reason: it was too fast. Therefore, the volatility will keep dropping because a sideways movement of the market is likely going to trap the price action around 2,350 points. Also, the positive correlation between the rise in the conditional variance and volatility (although the last one plummeted at the end) is a warning signal that should not be ignored.

Nevertheless, a short term retracement of the price should be quite likely to happen, particularly in the second half of the week, whilst E-Mini Nasdaq futures should retest the 2,345 – 2,350 area.

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