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E-Mini Nasdaq Futures Volatility Forecast (24/07/2011)

E-Mini Nasdaq futures had a very bullish week since the market headed north most of time despite a beginning a bit more uncertain. Specifically, futures opened at 2,340 on Monday, jumped to 2,391 on Tuesday, retraced to 2,381 on Wednesday, flew to 2,410 on Thursday and closed at 2,428 on Friday.

The volatility is now 0.8% (12.6% annualised) and the TGARCH plot seems suggesting that the upcoming hours will see a further flattening of the conditional variance because the volatility curve is evidently downward sloping.

The mean reverting process of the volatility should terminate once the readings will get around the 0.73% – 0.75% area (11.5% – 11.9% annualised) and then move sideways for a while before attempting to get back up again.

On the other hand, the index is very close to the highest level ever achieved by futures prices over the last 2 years (that is 2,430) and it is reasonable to think that some sideways play is going to take place in the first half of the week whilst in the second one we could see some retracements going on because many bears will definitely try to push the index back down again.

The HyperVolatility team is moderately bearish E-Mini Nasdaq futures because, although a lateral movement of the price is going to dominate the first days of the week, we are waiting for a short term rise of the conditional variance which is probably going to push futures towards the 2,340 area again.

However, the decrease in price should not be particularly strong or violent but rather constant and calm with occasional augment in the selling pressure around the 2,400 area.

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