E-Mini Nasdaq Futures Volatility Forecast (14/08/2011)

The last week we forecasted a violent retracement of the hi-tech index which would have brought futures prices to retest the 2,100 area and our projections proved even more profitable because the market settled well below that level.  E-Mini Nasdaq futures opened at 2,039 on Monday, achieved 2,154 on Tuesday, dropped to 2,085 on Wednesday, jumped to 2,158 on Thursday and closed at 2,177 on Friday.

The actual volatility is 3.4% (53.9% in annual terms) and the TGARCH plot is showing a volatility curve which is downward sloping and whose mean reverting process has already begun. The conditional variance should decrease, over the next trading days, and probably settle around the 1% area (15.8% annualised).

The big buy pressure that the market experienced in the last 2-3 days and the plunge in volatility, which is now starting to become more and more evident, are clear signals that many investors and traders are trying to collect as many shares as possible in order to profit from a potential return of the index to regularity.

The HyperVolatility team is bullish E-Mini Nasdaq futures because the oscillation rate is likely to continue its journey towards its equilibrium point whilst the price action is going to be backed by a decrease in its fluctuations rate. Furthermore, the VXN Index is now starting to mean revert and such a phenomenon should be an additional positive factor for the recovery of futures prices. We believe that the 2,260 – 2,275 points will be achieved by the next Friday, credit rating agencies permitting.

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