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DJ EuroStoxx50 Futures Volatility Forecast (29/05/2011)

The last week we were expecting a drop of the Index in the 2,805 – 2,810 area and effectively so it was. In fact, the market opened at 2,787 moved higher and touched 2,809 on Wednesday, it rallied to 2,818 on Thursday but 2,808 was the settlement price registered on Friday.

The volatility is around 0.98% – 1% (15.5% – 15.8% annualised) and the TGARCH plot is evidently displaying a curve which is trying to complete a mean reverting process whose run is going to end once the 0.8% support (12.6% in annual terms) is touched.

The drop in volatility and the initial doubtful movement of DJ EuroStoxx50 futures pushed many investors away from the European equity market (obligating them to invest in safer markets such as the Swiss Franc or Bund futures) but the upcoming week should bring some fresh and renewed buying pressure.

The volatility is probably going to decrease over the next trading hours and the plunge of the oscillation rate is likely to maintain the Index in the actual area and eventually to push it even higher.

The HyperVolatility team is bullish DJ EuroStoxx50 futures and we will try to place some long positions as soon as the market is going to open. However, should the volatility increase and surpass the 0.95% level (15% annualised) we will step aside and monitor the price action waiting for the next opportunity.

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