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E-Mini S&P500 Futures Volatility Forecast (29/05/2011)

E-Mini S&P500 futures moved higher probably pushed by the great depreciation of the US dollar against the euro, the pound starling and the Japanese yen. Specifically, the market opened at 1,314 remained stable around this area for a couple of days (1,313 and 1,316 have been the closing prices on Tuesday and Wednesday respectively) but the Index moved higher on Thursday with 1,326 points whilst 1,330 was the final closing price on Friday.

The actual volatility is 0.9% (14.2% in annual terms) and the TGARCH curve is now displaying a clear mean reversion movement which will tend to push the conditional variance towards its equilibrium point which is set around the 0.6% area (9.5% annualised).

The drop in volatility is a clear signal that many investors and traders did not get rid of their long positions and that the rally we saw the last week was robust and probably destined to continue over the next hours.

The HyperVolatility team is bullish E-Mini S&P500 futures because the plunge in volatility should favour an ulterior recovery of the price which is likely to retest the 1,335 – 1,345 area by the end of the next week.

Furthermore, a plummeting VIX and a weaker dollar are contributing factors that are going to act as catalysts during the next trading days. In other words, they are probably going to accelerate the rise of futures prices.

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