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DJ EuroStoxx50 Futures Volatility Forecast (10/07/2011)

The last week we were bearish DJ EuroStoxx50 futures and our forecast proved accurate and profitable once again. In fact, the market opened at 2,869 dropped to 2,853 on Tuesday, plummeted to 2,841 on Wednesday, recovered to 2,854 on Thursday and settled at 2,797 on Friday. An extremely profitable trade!!!

The volatility is now around 1% (15.8% annualised) but the TGARCH plot is visibly displaying a curve which is downward sloping although the up move is not proportioned at all to the drop we saw the last week. Additionally, the slope of the volatility curve is far from being steep and the very last part of the chart highlights that during the upcoming hours a slow flattening of the oscillation rate could be most probable scenario.

Furthermore, the 2,800 threshold, although was violated, is a fairly strong support level and the fact that the conditional variance is already diminishing is an indicator that the selling pressure is running out of steam.

On the other hand, the bad job news that was released on Friday along with Portugal’s downgrading and Greece’s default proximity are all factors that should be taken into account. Moreover, the shy volatility increase, despite of what happened, could also mean that the big move is yet to come.

The HyperVolatility team is bearish DJ EuroStoxx50 futures because the market should move sideways in the first part of the week and eventually touch the 2,775- 2,780 area by the next Friday.

Nonetheless, should the volatility drop back to 0.7% – 0.8% (11.1% – 12.6% annualised) we would start looking for buy opportunities but in that case our stops will be very tight.

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