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E-Mini S&P500 Futures Volatility Forecast (27/06/2011)

The American Market moved up in the first 2 days of the week where 1,273 and 1,287 have been the last price print for Monday and Tuesday but as soon as the negative news started to spread amongst investors E-Mini S&P500 futures got dragged down to 1,279 on Wednesday, to 1,277 on Thursday and settled at 1,263 on Friday.

The actual volatility is 1.2% (19% annualised) and the present chart does not differ much from the volatility plot we showed 1 week ago implying that the volatility is still too high, that a mean reverting process is now a very statistically probable event and that the news released throughout the past week managed to keep high fear and panic amongst investors.

Also, the volatility curve is not upward sloping anymore and such a phenomenon is a strong signal which emphasises the fact that the down move of E-Mini S&P500 futures prices is now over and that the American Index is probably ready to recover.

The HyperVolatility team remains bullish this market because the decreasing volatility is going to back the price action and push futures prices back into the 1,290 area by Friday.

As it often happens in these cases the conditional variance moves quite slowly but when it starts to plummet the mean reverting process becomes extremely violent and fast. In other words, once the variance will start to drop seriously the price is likely to jump very aggressively.

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