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DJ EuroStoxx50 Futures Volatility Forecast (27/03/2011)

The last week we entered some longs because we forecasted a sharp rise in DJ EuroStoxx50 futures and effectively the market closed at 2,834 whilst our expected value was 2,850 -2,900 points.

The volatility curve is still downward sloping and it is around 1.5% (23.8% in annual terms) but it is quite likely that the drop of the conditional variance will continue even in the upcoming trading days because the mean reverting process will end towards the 0.8% zone (12.6% annualised).

Consequently, the market should keep rising but once the equilibrium point will be achieved the market will probably settle and move in a narrow range. That is why we believe that the 2,900 – 2950 points will be the next week profit target but as soon as the volatility will manage to find support the strength of the up move will diminish dramatically.

The staff of HyperVolatility remains bullish on DJ EuroStoxx50 futures and we will enter some long positions as soon as the market will open. However, we will constantly monitor market volatility because a too fast drop of the conditional variance will obligate us to tighten our stops.

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