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DJ EuroStoxx50 Futures Volatility Forecast (05/10/2011)

DJ EuroStoxx50 futures opened at 2,097 on Monday, touched 2,163 on Tuesday, plunged to 2,138 on Wednesday, rose to 2,203 on Thursday and retraced to 2,148 on Friday.

The volatility is around 2.5% (39.6% in annual terms) and the TGARCH plot is manifestly displaying a downward sloping curve which seems now ready to start its mean reverting journey towards the medium term equilibrium point which is set around the 1.2% threshold ( 19% annualised).

It is worth noting that this is the first time in 2 months that the volatility curve manages to break through the 2.7% support (42.8% in annual terms) implying that, although some short term retracements are almost inevitable, the conditional variance should probably keep plummeting over the next hours.

The situation in Europe is far from being rosy but some encouraging words are being heard from European politicians which are trying to secure banks exposed to Greece CDS.

The HyperVolatility team is moderately bullish DJ EuroStoxx50 futures because the softening oscillation rate should back the price action that could potentially settle around the 2,220 area before Friday, news permitting.

DJ EuroStoxx50 Futures Volatility Forecast (27/09/2011)

DJ EuroStoxx50 futures opened at 2,100 on Monday, touched 2,105 on Tuesday, dropped to 2,048 on Wednesday, plunged to 1,986 on Thursday but settled to 2,020 on Friday.

The current volatility is 2.6% (41.2% annualised) and the TGARCH curve is evidently showing an upward sloping curve which seems suggesting that an ulterior augment in the oscillation rate should be expected in the upcoming trading days. However, the 3% volatility level (47.6% in annual terms) proved to be a solid support in the previous week and only a breakthrough of this threshold would provoke a further explosion which would push the oscillation rate towards the 4% again (63.4% in annual terms).

The concerns about the stability of peripheral European countries hit heavily all markets and the DJ EuroStoxx50 is clearly not an exception to the rule. Most of the attention will be concentrated on the 2-3 trillion parachute that EU policy makers are thinking of implementing and this could add many speculative bidders to the crowd.

The HyperVolatility team is moderately bullish this market because the high volatility levels should soften and head south before Friday although some short term explosions are still probably. Consequently, we are expecting the price to retest the 2,150 – 2,180 area by Friday because the diminishing rate of market fluctuations should allow the price action to regain terrain.

DJ EuroStoxx50 Futures Volatility Forecast (19/09/2011)

DJ EuroStoxx50 futures opened at 2,022 on Monday, rose to 2,047 on Tuesday, touched 2,113 on Wednesday, jumped to 2,176 on Thursday and closed at 2,152 on Friday.

The current volatility is 3.3% (52.3% annualised) and the TGARCH plot is manifestly showing a volatility curve which is moving sideways although still trading in a very high range. The downward inclination of the slope seems suggesting that the upcoming trading days will see an ulterior decrease of market oscillations and that the mean reverting process will finally start to become more and more evident.

The concerns surrounding Europe and in particular Greece are still pretty high amongst investors, however, the decrease in the fluctuation rate is signalling that some investors became more optimistic about the future of the Single currency after the statement that “Greece will remain in the Eurozone” (at least according to Nicolas Sarkozy and Angela Merkel).

The HyperVolatility team is moderately bullish DJ EuroStoxx50 futures because an ulterior drop in the conditional variance could easily support the price action which could head north during the hours and eventually retest the 2,250 area.

On the other hand, the rise in price is going to be very weak and the fact that the volatility curve is still trading around the 3% area implies that the risk of sharp retracements remains concrete.

DJ EuroStoxx50 Futures Volatility Forecast (06/09/2011)

DJ EuroStoxx50 futures opened at 2,258 on Monday, dropped to 2,245 on Tuesday, rose to 2,302 on Wednesday, plummeted to 2,276 on Thursday and closed at 2,205 on Friday.

The actual volatility is around 3.4% (53.9% in annual terms) and the TGARCH plot is displaying a curve which is trading sideways but that is fully back to the warning levels that have been achieved during the heavy sell-off that hit equity markets a few weeks ago. Also, it is worth noting that the mean reverting tendency of the volatility has been completely overwhelmed by a significant selling pressure which maintained the oscillation rate around readings that are historically very high.

The fact that the volatility is moving laterally, although extremely high, means that fear and uncertainty are still the predominant feelings amongst market participants and therefore the oscillation rate is likely to remain at this level even in the upcoming hours.

The HyperVolatility team is bearish DJ EuroStoxx50 futures because the conditional variance should increment over the next trading hours dragging futures prices back down in the 2,110 – 2,120 area by Friday.

DJ EuroStoxx50 Futures Volatility Forecast (30/08/2011)

DJ EuroStoxx50 futures opened at 2,171 on Monday, touched 2,234 on Tuesday, achieved 2,250 on Wednesday, plummeted to 2,194 on Thursday and closed at 2,199 on Friday.

The volatility is 2.1% (33.3% annualised) and the TGARCH plot is showing an overall downward sloping curve which seems to be in the final part of its mean reverting journey towards the 0.8% – 1% area (12.6% – 15.8% annualised). However, the very last part of the curve shows a shy retracement of the conditional variance, which has been mainly caused by nervous market moves pre-Bernanke’s speech, and that should not represent a warning signal.

The HyperVolatility team is moderately bullish DJ EuroStoxx50 futures because the conditional variance should keep plummeting over the next hours, although some short term bursts are almost inevitable, and we believe that the 2,260 points will be achieved by Friday.

This week most of the attention will be concentrated on the Italian auction, Manufacturing Index and Non Farm Payrolls and bad figures could surely increase investors’ fear even more.

A great deal of attention will be needed during the upcoming days because even if the volatility should keep plummeting because a negative figures in a leading macroeconomics indicator could easily unleash an ulterior sell-off.

DJ EuroStoxx50 Futures Volatility Forecast (22/08/2011)

In the first half of the week the European index moved higher as we forecasted. However, the profit target was not reached because the macroeconomics news and foolish political decisions altered the price action and pushed investors to close all their long positions.

DJ EuroStoxx50 futures opened at 2,344 on Monday, dropped to 2,306 on Tuesday, rose to 2,312 on Wednesday, plummeted to 2,201 on Thursday and closed at 2,138 on Friday.

The current volatility is 4.4% (69.8% annualised) and the TGARCH plot is evidently displaying an upward sloping curve implying that the already extreme market swings are likely to augment over the next trading hours because the uncertainty surrounding Europe’s debt crises is still very high amongst investors and traders.

The fact that the volatility is still not showing any sign of rest is a strong indication that both fear and uncertainty are still the predominant feelings amongst investors. Furthermore, some rumours regarding a Europe-based bank borrowing $ 500 million from the ECB are now circulating amongst investors (the name of the bank has not been disclosed but “someone suggested” Societe Generale). Given the actual market conditions the situation could get even worse in the next days.

The HyperVolatility team is bearish DJ EuroStoxx50 futures and should the conditional variance keep increasing we would have the price to retest the 2,000 support by the next Friday. Should the price break through the aforementioned level we would probably get back to the “2009 scenario” with volatility readings around the 85% – 90% zone.

DJ EuroStoxx50 Futures Volatility Forecast (14/08/2011)

The profit target for the short positions was set at 2,200 one week ago and, once again, our analysis proved accurate and, most importantly, profitable because on Wednesday the DJ EuroStoxx50 closed even lower than the aforementioned level. In particular, DJ EuroStoxx50 futures opened at 2,213 on Monday, jumped to 2,324 on Tuesday, plunged to 2,148 on Wednesday, recovered and achieved 2,237 on Wednesday and closed at 2,306 on Friday.

The volatility is 6% (95.2% annualised, believe it or not) and the TGARCH chart is evidently displaying a downward sloping curve which seems to have started its mean reverting movement towards the equilibrium point, which in this case would be the 1% -1.5% area (23.8% in annual terms). Additionally, the balance point we previously mentioned is still higher than the real long term average volatility for DJ EuroStoxx50 futures but, given the market conditions, the 1% – 1.5% zone is a fairly relevant target.

The support that struggling economies are getting from the ECB is surely helping to re-build investors’ confidence and the fact that the Index plummeted for almost 10 consecutive days is now pushing more and more traders towards bargain hunting because the last down movements have been entirely driven by speculative attacks.

Moreover, the short selling ban which was introduced in Italy, France, Spain and Belgium is probably going to buy some time and stop their banks from seeing their shares trading closer and closer to 0.

The HyperVolatility team is bullish the DJ EuroStoxx50 futures because the volatility should continue to drop over the next hours favouring a recovery of the price action which should eventually achieve the 2,450 – 2,500 points by the next Friday.

DJ EuroStoxx50 Futures Volatility Forecast (08/08/2011)

The European Index sharply plummeted over the last trading days because the concerns about the stability of Europe have been added to the slow growth of the US economy. DJ EuroStoxx50 futures opened at 2,600 on Monday, dropped to 2,511 on Tuesday, settled at 2,520 on Wednesday, plummeted to 2,359 on Thursday and closed at 2,420 on Friday.

The current volatility is 2.9% (46% in annual terms) and, even in this case, the TGARCH plot is displaying an extremely high volatility curve which does not have any sign of retracement and that visibly represents the magnitude of the drop which hit futures prices. Moreover, it is worth pointing out that the same volatility level was achieved in April-May this year when DJ EuroStoxx50 futures dropped 200 points (from 2,980 to 2,780).

The US downgrade along with Italy and Spain’s skyrocketing yields are bad enough news to keep the bearish sentiment up. Furthermore, the volatility, although very high, does not show any sign of weakness or retracement meaning that it will probably keep rising over the next hours.

The HyperVolatility team is very bearish DJ EuroStoxx50 futures and the price is likely to retest the 2,200 points by Friday.

Investors are well aware that small economies such as Portugal, Ireland or Greece can be bailed out but a default of Spain and Italy on their debts would lead to a financial catastrophe because Germany (which paid the largest amount of money so far) can’t afford to rescue such big economies.

DJ EuroStoxx50 Futures Volatility Forecast (02/08/2011)

DJ EuroStoxx50 futures opened at 2,742 on Monday, dropped to 2,733 on Tuesday, plummeted at 2,666 on Wednesday, touched 2,667 on Thursday and closed at 2,650 on Friday.

The current volatility is 1.5% (23.8% in annual terms) and the TGARCH chart is evidently showing a volatility curve which, although still upward sloping, has reached one of the highest levels over the last 5 months and seems almost ready to begin its mean reverting process.

DJ EuroStoxx50 futures are still in a medium term bearish trend and the resistance that investors and traders will try to break is the one placed at 2,800 but this level, historically, has not proved to be that strong and therefore there should not be much volatility hitting the market should the price rally through this point.

The HyperVolatility team is bullish the DJ EuroStoxx50 futures because, although the first half of the week could bring more volatility as highlighted by the chart, the second one should see the market rally accompanied by a mean reverting movement of the oscillation rate. We are expecting the European Index to retest the 2,870 – 2,880 area by Friday.

DJ EuroStoxx50 Futures Volatility Forecast (24/07/2011)

DJ EuroStoxx50 futures rose significantly, at an almost constant rate, over the last trading days. In fact, the market opened at 2,631 on Monday, rose to 2,673 on Tuesday, touched 2,709 on Wednesday, jumped to 2,778 on Thursday and closed at 2,777 on Friday.

The actual volatility is 1.4% (22.2% annualised) and the TGARCH plot is showing a downward sloping curve that is right at the beginning of its mean reverting process which is probably going to end once the volatility curve will have touched the 0.8% threshold (12.6% in annual terms).

The high volatility environment of the DJ EuroStoxx50 futures has been largely caused by the renewed concerns about the sovereign debt crisis in Europe whilst the last bad news, which regarded Italy’s creditworthiness and stability, undermined once again the credibility of the European bail out plans sustainability in the long term.

In other words, investors and traders were afraid that the European Union could not afford bailing out countries as big as Italy or Spain and that’s why the last week as soon as the news started to converge towards the Italian short term debt auction the DJ EuroStoxx50 index began vacillating.

The HyperVolatility team is bearish this market because the symmetric effect between volatility and price action should be interpreted as a warning signal. Specifically, we believe that the market will give up most of the gains accrued in the last 5 days and retrace towards the 2,600 points.

However, the volatility should keep heading south and that is why we believe that the down move of the European Index is not going to be violent but rather constant.

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