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E-Mini Nasdaq Futures Volatility Forecast (10/07/2011)

E-Mini Nasdaq futures opened at 2,365 rose to 2,370 on Tuesday, closed to 2,375 on Wednesday, jumped to 2,416 on Thursday and settled to 2,408.5 on Friday.

The actual volatility is 0.24% (3.8% annualised) which is the lowest level ever achieved by the conditional variance in the last 5 months and, although the curve is evidently downward sloping, it is almost sure that the next trading days will see a mean reverting process of the oscillation rate which will “try” to get back to its equilibrium point; that is 0.8% (12.6% in annual terms).

The huge drop in volatility is a clear sign that the buying pressure was extremely high and that almost all investors and traders did not place any substantial short position.

However, an augment of volatility over the next trading days it’s practically sure, since the actual rate is almost close to 0, and that’s why the bearish view remains unchanged even for the upcoming week.

The HyperVolatility team, as previously mentioned, is bearish E-Mini Nasdaq futures because the conditional variance will definitely augment over the next hours and such a phenomenon will probably drag the price back down in the 2,345 – 2,350 area.

However, should the volatility fluctuates around the actual values we won’t enter the market at all but, statistically speaking, this is an eventuality which should be opted out.

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