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E-Mini S&P500 Futures Volatility Forecast (24/07/2011)

E-Mini S&P500 futures, like many other equity indices, rallied consistently throughout the entire week and retested the 1,345 – 1,350 area. The market opened at 1,300 on Monday, rose to 1,321 on Tuesday and remained to this level on Wednesday too but on Thursday it jumped up to 1,342 and closed at 1,340 on Friday.

The current volatility is 0.43% (6.8% annualised) and the TGARCH plot is evidently showing a situation that is not sustainable in the long term because the downward sloping curve has just touched one of the lowest levels in 5 months.

The volatility will probably start to mean revert over the next trading days and settle around the 0.6% – 0.65% area (9.5% – 10.3% in annual terms) which is the equilibrium point for the conditional variance in the medium term.

The American Index has been moving laterally since the middle of May and the price action has been consolidating for more than 2 months just below the resistance point placed at 1,350.

The HyperVolatility team is moderately bearish on E-Mini S&P500 futures because the conditional variance will almost certainly augment over the next hours bringing some more instability to futures prices.

We believe that, in the first half of the week, the Index will keep moving sideways with occasional attempts to break through the aforementioned resistance level; however, in the second half there should be a short term retracement, favoured by an increased confidence of bears, which will bring E-Mini S&P500 futures back down in the 1,310 – 1320 area by the next Friday.

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