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E-Mini S&P500 Futures Volatility Forecast (10/05/2011)

The last week we were bearish E-Mini S&P500 futures and our analysis proved extremely profitable and accurate once again. Specifically, the market opened at 1,357 it plummeted to 1,343 on Wednesday but the selling pressure was extremely high and futures prices closed at 1,335 on Friday.

The actual volatility is around 0.8% (12.6% in annual terms) and the slope of the TGARCH curve seems suggesting that the down move that characterised the market the last week is now over. Additionally, the volatility curve will probably tend to revert towards its equilibrium point which is in the 0.55% – 0.6% area (8.7%- 9.5% annualised).

Additionally, the selling pressure which was mainly driven by the massive drop that commodity markets (and particularly oil prices) went through accompanied by a strengthening dollar, should not continue in the upcoming hours and many bulls will tend to place some robust long positions.

The HyperVolatility team is bullish on E-Mini S&P500 futures and we will try to place some long positions as soon as a convenient price will show up. In fact, if the volatility collapses or remains low the price should head north again and retest the 1,355 – 1,358 area by the next Friday.

On the other hand, should the volatility rise unexpectedly and surpass the 0.9% threshold (14.2% annualised) we would not place any positions at all. However, given the fact that the VIX Index is plummeting too such eventuality should not represent a real threat.

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