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DJ EuroStoxx50 Futures Volatility Forecast (19/12/2010)

The last week we forecasted an up movement of the price and effectively so it was but the failure to remain in that area significantly changed the environment. In fact, the DJ EuroStoxx50 futures dropped back to 2,829 and the TGARCH plot is now showing a slightly upward sloping curve around 1% (15.8 % annualised).

The DJ EuroStoxx50 should continue to fall and readings around 2800 are not far from being touched before Friday. Consequently, the volatility is likely to rise and achieve 1.3% (20.6% annualised) but the curve could be pushed up until 1.5% (23% in annual terms) if the panic starts to spread.

Why the DJ EuroStoxx50 is going to fall? Many investors are willing to bank the profits gained from the latest rally of the Index and, since the price failed to break through the 2900, it means that, at least at the moment, the market does not have the power, the strength and the will to head higher. The drop we saw during the last days is a signal that many fund managers, traders and investors are selling back their longs.

The staff of HyperVolatility advises you to close your longs and start looking at the short side of the market because if the price does not drop it will trade sideways until the end of the year but a strong rally towards the 2,900 ,given the current situation, is highly improbable.

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