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.

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