Bear market rally still has room to grow

Dusseldorf Share prices are rising again, but many investors remain cautious. You’re seeing a bear market rally in the current move up — a short period of rising prices within a long period of falling prices. This is the result of the Handelsblatt survey Dax-Sentiment among more than 7000 private investors.

Since its low for the month of 13,381 points on May 9, the leading German index, the Dax, has risen by more than eight percent. At the same time, investor sentiment has risen from an extremely pessimistic minus 5.8 to currently minus 0.1, but remains negative for the 22nd week in a row – by far the longest phase of weakness since the survey started eight years ago.

Extremely negative investor sentiment has thus again proven to be a contraindicator: if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress the courses. Conversely, a few purchases are enough to cause prices to rise. This is shown by the fact that the trading volume on winning days is below average: since the beginning of May, it has been twelve percent below the level on losing days in the Dax on winning days.

“In the week before last, the negative mood erupted in rising prices, which were observed in disbelief by investors,” explains sentiment expert Stephan Heibel, who evaluates the weekly survey for the Handelsblatt. “In the past week, investors have registered the positive development, the mood has brightened, although the Dax ended the week unchanged.”

The beginning of the upward movement surprised many investors: in the week before last, almost every second survey participant had not expected it. In the past week, this was only the case for every third person. As a result, the uncertainty is also falling, from minus 2.3 to minus 0.1. The highest value since the end of March.

While in the previous week every second person diagnosed a downward movement in the Dax, it is currently only every fourth person.

It is striking that parallel to the rising prices, the Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade, has slipped to minus five. “Protective purchases were made immediately so as not to risk the small price gains again immediately,” explains Heibel. Institutional investors who hedge themselves via the Eurex derivatives exchange have also increasingly bought put protection, the value of which increases when prices fall.

The reason for this hedging is the still skeptical attitude. A number of respondents think the current move higher is just a bear market rally. In three months, only every fourth respondent expects prices to rise.

Nevertheless, the group of those who want to act in the next two weeks has grown. “The investment sentiment of plus 1.1 is a sign that some investors want to benefit from this bear market rally,” says Heibel.

How long a bear market rally will last is difficult to predict. Heibel currently sees further potential for rising prices: “We are still a long way from sentiment values ​​that would weigh on the continuation of the rally.”

In the past, the Dax rose by an average of 9.8 percent in the following six months after comparable negative market phases. In an average of every fourth case, however, the Dax then fell even more heavily.

What speaks against a repetition of such a negative scenario from Heibel’s point of view is that the rally surprised so many investors. Accordingly, few were able to participate in the rising prices.

A sudden drop in prices is currently unlikely

For example, the investment ratio of US fund managers is extremely low at 34 percent. So you have a lot of cash that you will invest again sooner or later. The mood among US private investors is also improving: the optimist camp has risen to 32 percent, while the pessimist camp has fallen from 54 to 37 percent. “So a market phase could follow in which more and more investors use fluctuations on the stock market to successively build up positions,” explains Heibel.

A sudden, renewed price slump therefore seems less likely to the managing director of the analysis company AnimusX. However, only as long as there is no bad news from the Ukraine war or the central banks.

There are two assumptions behind surveys such as the Dax sentiment with more than 7000 participants: If many investors are optimistic, they have already invested. Then only a few are left who could still buy and thus drive prices up. Conversely, if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress the courses.

Do you want to take part in the survey? Then let yourself be automatically informed about the start of the sentiment survey and register for the Dax sentiment newsletter. The survey starts every Friday morning and ends on Sunday afternoon.

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