E-Mini S&P500 Futures Volatility Forecast (02/08/2011)

E-Mini S&P500 futures opened at 1,333 on Monday, dropped to 1,326 on Tuesday, plummeted to 1,299 on Wednesday, settled at 1,297 on Thursday and closed at 1,292 on Friday.

The actual volatility is 1% (15.8% annualised) and the TGARCH plot is evidently displaying a volatility curve which has dropped significantly over the last two weeks but that sharply mean reverted and jumped back up again during the last 5 trading days. Furthermore, the conditional variance seems now “intentioned” to trade within the actual ranges even if the fair equilibrium point for this market is around the 0.65% – 0.73% threshold (10.3% – 11.5% annualised).

Many markets are now close to break through their 2 years highs and the 1,350 – 1,360 threshold is the E-Mini S&P500 futures obstacles that bulls will have to overcome if they want to see the market keeps rallying higher. Specifically, the price action attempted to surpass this level quite a few times in the past but it never successfully managed to remain above it for a time sufficient enough to boost investors’ confidence.

The HyperVolatility team is bullish E-Mini S&P500 futures because the volatility plot shows a fairly robust curve which should keep the weekly average price up. In particular, we expect the 1,330 – 1,335 area to be retested by Friday even if some short term explosions of the conditional variance could easily bring back down futures prices (particularly in the first half of the week).

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