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DJ EuroStoxx50 Futures Volatility Forecast (23/05/2011)

The HyperVolatility team was right once again. The last week we forecasted a bearish movement of the Index but we also anticipated a strong sideways move of the price action and effectively so it was. Specifically, the market opened at 2,844 rallied to 2,860 and the dropped back to 2,834 on Friday.

The volatility is now at 0.98% (15.5% annualised) and the plot is evidently displaying a quite stable situation where the conditional variance is constantly decreasing and just achieved its equilibrium point.

DJ EuroStoxx50 futures clearly failed to break through the 2,880 resistance point which proved to be quite solid and many bears took advantage of bulls’ indecision to drag back the price in a more “comfortable” area.

Additionally, the volatility is still very low and the probability of a short term retracement could be quite high even during the next hours and consequently a great deal of attention will be needed in order to profit from such uncertain markets.

The HyperVolatility team remains bearish on DJ EuroStoxx50 futures because we think that the down move did not start yet and the conditional variance will tend to spike up over the next trading days and eventually touch the 1% – 1.05% threshold (15.8% – 16.6% in annual terms).

Consequently, futures prices should plummet and probably retest the 2,805 – 2,810 area but another lateral movement of the price, at least in the initial part of the week, is quite probable to occur.

Once again, we will wait for the volatility to augment before entering the market and should the conditional variance remains stable we would not place any trade at all.

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