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.

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