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DJ EuroStoxx50 Futures Volatility Forecast (24/04/2011)

The great retracement we forecasted the last week really occurred but this time the main catalyst was the sharp drop of the S&P500 Index caused by the great concerns about the American debt.

The actual volatility is around 1.3% (20.6% annualised) and the curve is clearly collapsing towards its equilibrium point which is around 0.8% (12.6% in annual terms) implying that the up move the market experienced from Tuesday onwards is quite stable and likely to continue over the upcoming trading days.

The main reason the European Index collapsed was due to the American debt current situation but a quick drop of the conditional variance soon after the great plummet of futures prices means that many investors did not get rid of their long positions and still believe that higher returns are to be gained.

The HyperVolatility team is bullish on DJ EuroStoxx50 futures and we will place some longs immediately because it is quite likely that the Index is going to break through the 2,880 points and eventually achieve 2,890 by the end of the next week.

However, we will constantly monitor the volatility because this is week is going to be pretty uncertain despite the fact that the conditional variance is signalling a robust and fairly stable price action.

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