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DJ EuroStoxx50 Futures Volatility Forecast (22/08/2011)

In the first half of the week the European index moved higher as we forecasted. However, the profit target was not reached because the macroeconomics news and foolish political decisions altered the price action and pushed investors to close all their long positions.

DJ EuroStoxx50 futures opened at 2,344 on Monday, dropped to 2,306 on Tuesday, rose to 2,312 on Wednesday, plummeted to 2,201 on Thursday and closed at 2,138 on Friday.

The current volatility is 4.4% (69.8% annualised) and the TGARCH plot is evidently displaying an upward sloping curve implying that the already extreme market swings are likely to augment over the next trading hours because the uncertainty surrounding Europe’s debt crises is still very high amongst investors and traders.

The fact that the volatility is still not showing any sign of rest is a strong indication that both fear and uncertainty are still the predominant feelings amongst investors. Furthermore, some rumours regarding a Europe-based bank borrowing $ 500 million from the ECB are now circulating amongst investors (the name of the bank has not been disclosed but “someone suggested” Societe Generale). Given the actual market conditions the situation could get even worse in the next days.

The HyperVolatility team is bearish DJ EuroStoxx50 futures and should the conditional variance keep increasing we would have the price to retest the 2,000 support by the next Friday. Should the price break through the aforementioned level we would probably get back to the “2009 scenario” with volatility readings around the 85% – 90% zone.

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