E-Mini S&P500 Futures Volatility Forecast (13/06/2011)

The last week we were bearish E-Mini S&P500 futures, we indicated the 1,265 – 1,270 area as a potential profit target and our volatility-based projection proved extremely accurate once again. In particular, the market opened at 1,285 it dropped to 1,277 on Wednesday and, although it touched 1,287 on Thursday, futures prices plummeted and settled at 1,269 on Friday.

The volatility is currently at 1.4% (22.2% annualised) and the TGARCH plot is visibly displaying a curve which is unusually high but it seems that the mean reverting process of volatility is already on its way.

The bad macroeconomics news that hit the market last week pushed the conditional variance to the actual level but the oscillation rate should now drop and point towards the equilibrium point which is around the 0.4% area (6.3% annualised).

The HyperVolatility team is moderately bullish on E-Mini S&P500 futures because the decreasing volatility should favour a recovery of the price during the next trading days.

However, a bit of a sideways play is not an eventuality to opt out particularly in the first half of the week but in the second half futures prices should head north once again and eventually achieve 1,290 by Friday.

We will constantly monitor the volatility and we will wait for a statistically reliable entry point because the progression of the mean reverting process is usually quite slow at the beginning but pretty violent at the end.

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