E-Mini Nasdaq Futures Volatility Forecast (21/06/2011)

The last week we were bullish E-Mini Nasdaq but an unexpected volatility explosion pushed the Index in the opposite direction. In fact, the market opened at 2.223, topped at 2.251 on Tuesday, dropped to 2.209 on Wednesday and kept decreasing until the end of the week because 2.199 and 2.190 have been the last price prints on Thursday and Friday respectively.

The current volatility is 1.4% (22.2% annualised) but the TGARCH curve has now touched its highest points in 5 months and it is reasonable to believe that it will start a mean reverting process that will push it back towards its equilibrium point: 0.6% (9.5% in annual terms).

The decrease in volatility should be quite slow at the beginning but fairly violent as the conditional variance approaches its balance level and such a phenomenon could bring some slow but constant increase in futures prices followed by a violent and unexpected buying pressure which are obviously going to favour a recovery of the price.

Moreover, the fact that the volatility curve is not that steep anymore implies that the selling pressure has run out of steam and that bulls are going to be in charge of market directions.

The HyperVolatility team is bullish E-Mini Nasdaq futures because we believe that the market will rally quite sharply over the next hours and eventually achieve 2,255 – 2.260 by Friday.

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