DJ EuroStoxx50 Futures Volatility Forecast (13/06/2011)

The last week we were bearish the DJ EuroStoxx50 and we proposed the 2,730 area as a good profit target for a potential short position; our analysis were very good once again. In fact, the Index opened at 2,741 (2,784 was the closing price 2 weeks ago) it dropped to 2,738 on Wednesday and, although it rallied to 2,782 on Thursday, DJ EuroStoxx50 futures closed at 2,730 on Friday.

The current volatility is 1.8% (28.5% annualised) and the TGARCH plot is displaying an evidently downward sloping curve which is probably going to touch 0.85% – 0.9% (13.4% – 14.2% in annual terms) before the end of the week.

The diminishing oscillation rate is a pretty strong signal that the down move is over and that the market is ready to go up again even if the recovery should not be as strong as someone might think.

Specifically, the conditional variance curve already dropped significantly, although the market plummeted during the last day of the previous week, meaning that some investors kept their long positions on and therefore we expect the up move not to be violent but constant and slow.

The HyperVolatility team is moderately bullish on DJ EuroStoxx50 futures because the decrease in market fluctuations is going to push the price higher although we reckon that a sideways movement could easily dominate the week.

However, the Index should retest the 2,780 – 2,790 area by Friday and we will wait for the volatility to provide us with a statistically reliable entry point before entering the market.

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