E-Mini Nasdaq Futures Volatility Forecast (23/05/2011)

The Nasdaq Index, like many other equity indices, moved sideways and we managed to “capture” that movement in our previous’ week analysis although we were expecting a stronger bearish movement around Thursday or Friday. Specifically, the market opened at 2,334 rallied to 2,367 on Thursday and it dropped back to 2,345 on Friday.

The actual volatility is 1.98% (31.4% annualised) and the TGARCH plot is displaying a downward sloping curve which normally we would interpret as a bullish signal but in the reality the drop in the conditional variance has been obviously caused by the lateral movement of the price action.

The volatility curve will probably tend to complete the mean reverting process and touch the 0.8% level (12.6% annualised), phenomenon which is likely to accompany a further sideways movement of the price action, but by the end of the week we should see an ulterior explosion of the variance.

The HyperVolatility team is moderately bearish on E-Mini Nasdaq futures because the initial sideways movement of the market should anticipate a drop of the price which could retest the 2,305 – 2,310 area by Friday.

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