Dusseldorf The leading German index briefly surpassed the 16,000 point mark again today, Tuesday, and reached a new annual high of 16,011 points on the first trading day of May. The Dax then slipped significantly again. In afternoon trading, the stock exchange barometer was at 15,783 points, a drop of 0.9 percent or the equivalent of 140 points.
After yesterday’s holiday, the European stock exchanges have to process a lot of data and news this Monday. On the positive side, the rescue of First Republic Bank and the stronger-than-expected rise in the ISM purchasing managers’ index. On the downside, China’s Manufacturing Purchasing Managers’ Index slipped below the expansion threshold of 50.
For the capital market expert Thomas Altmann from the fund house QC Partners, European investors “traditionally weight data from the USA more than data from the Middle Kingdom in their decisions”. The traffic lights are green for the late start to the stock market week.
The stock market month of April did not quite manage its average price increase of 2.8 percent since 1989. The increase was only 1.9 percent. But since the start of the year, the Dax has already climbed by around 14 percent, and since the low of last year at the end of September even more than 31 percent.
Both investor sentiment and technicals are pointing to continued rising prices, making a rally to the record high of 16,290 likely.
There are four good reasons for further price gains.
1. “Wall of Worries”: Investor pessimism is a good counter-indicator
Normally, when prices are just below a record high, there should be a euphoric mood among investors, because of the joy about the price gains that have already been achieved and the anticipation of further price gains. But according to the results of the current Handelsblatt survey Dax-Sentiment, the opposite is the case.
A majority has apparently not benefited from the price gains in recent weeks and, given the many risks such as a recession or the war in Ukraine, expect prices to fall. Attentive readers of sentiment analyzes know that such a sentiment is a counter-indicator and tends to suggest rising prices. There is also a suitable stock market proverb for this: Prices rise on a wall full of doubts, the “wall of worries”.
2. Investors must chase rising prices
In the two-week sideways movement in April, investors began to bet on a rapid slide in prices. This is shown by the current survey by the Frankfurt Stock Exchange from last Wednesday.
“Everyone is waiting for the bang,” said behavioral economist Joachim Goldberg after evaluating the Frankfurt Stock Exchange survey of institutional and private investors.
This was driven by a desire for a price slide, which would have allowed for quick profits by selling the short positions. At the same time, a new entry opportunity would have arisen.
But with the second high for the year within two trading days, this scenario seems to have become obsolete. These investors are now under pressure to sell their short positions to keep the losses from getting too large.
This is a pillar for the market. Because with a short speculation, the purchase of a put product on the Dax, the leading index is sold first. If the derivative is sold, the Dax must be bought back, which causes the price to rise.
Dax climbs above the 16,000 mark
3. New buy signal at the Dax
According to technical analysis, the course of trading last Friday provided a new procyclical buy signal. On the one hand, the important resistance area between 15,700 and 15,600 points was successfully tested with the daily low of 15,688 points.
And on the other hand, the approximately two-week sideways phase was resolved upwards with a new annual high. Interestingly, all trading activity since April 14 has been within last Friday’s range.
Martin Utschneider, technical analyst at private bank Donner & Reuschel, predicts a medium-term price target of around 16,600 points. However, various medium-term indicators are signaling that things are going up rather slowly.
4. Dax price index still has some catching up to do
A look at the Dax price index, in which, in contrast to the classic Dax, the dividends are not included, shows: At 6451 points, this price index is around seven percent below its record high of 6883 points.
For Jörg Scherer, technical analyst at HSBC Germany, the development so far gives hope that this price index will rise again to the area of its record high. An increase of seven percent in the Dax as a performance index would mean a level of 17,000 points – plus the dividends, which are also included.
Inflation rate remains high
Inflation in the euro zone picked up again somewhat in April. Consumer prices increased by seven percent compared to the same month last year, as the statistics office Eurostat announced on Tuesday. In March, the rate had fallen significantly: from 8.5 percent in February to 6.9 percent. Experts had expected an unchanged rate for April.
In contrast to general inflation, core inflation fell somewhat in April. For consumer prices excluding volatile energy and food prices, Eurostat reported a 5.6 percent year-on-year increase. In March, core inflation was 5.7 percent, the highest level in the currency area’s existence. According to economists, it gives a good impression of the basic inflation trend.
US stock market expert Koch: “Uncertainty before the tech results”
Look at individual values
Infineon: The best value in the leading index are the shares of the chip company with plus 3.2 percent. They benefited from good industry specifications from the USA. At 2:00 p.m., the chip group will start the expansion of its plant in Dresden in a way that attracts the public. Infineon is investing five billion euros in semiconductor production and wants to create around 1,000 new jobs. From a geopolitical point of view, the investment is valued in order to make Europe more independent from chip production in Asia.
Traton: After an unexpectedly good first quarter, the Volkswagen truck subsidiary is raising its profit forecast. Traton was able to increase the sales figures for its MAN, Scania, Navistar and VW brands by a quarter to a good 84,500 after the situation with suppliers had eased. After a friendly start, the share is down 1.5 percent.
Software AG: According to stockbrokers, the increased interest of hedge funds is fueling speculation about a bidding war. The shares of the Darmstadt-based company therefore rose by around seven percent on Tuesday to EUR 33.06 and were thus above the offer from the financial investor Silver Lake.
According to the Bloomberg news agency, Bain Capital has bought shares in Software AG. The investor is looking to talk to the SAP rival and wants to merge it with Rocket Software. Bain took over the US IT service provider in 2018 for around two billion dollars. Bloomberg also previously reported that activist investor Elliott had bought into Software AG to capitalize on a potential bidding war.
Silver Lake offers 30 euros per share or a total of 2.2 billion euros for Software AG. The investor has held a stake in the company since 2021 and can receive a further nine percent of the shares via a convertible bond. As part of the current takeover bid, Silver Lake secured a 25.1 percent block of shares from company co-founder Peter Schnell.
Shop pharmacy: At the beginning of the year, the online drug retailer managed to make a leap in growth. The company achieved an adjusted operating profit (Ebitda) of EUR 13 million in the first quarter after a loss of EUR 4.3 million a year ago. The Board of Directors reaffirmed its goals for the year. The share price, which has more than doubled since the beginning of the year, fell 1.5 percent on Tuesday.
SGL Carbon: A buy recommendation from Deutsche Bank boosted the stocks of the carbon specialist. The price increases by more than eight percent.
stabilizer: In the second fiscal quarter, the automotive supplier is benefiting from increasing car production in Europe and good industrial business in North America. However, some analysts had expected an even better performance. The annual forecasts confirmed the Koblenz. The papers lose almost four percent.
In the Dax, the papers of the pharmaceutical and chemical groups Merck KGaA and Bayer are traded with a dividend discount on Tuesday, so price losses here are primarily of a visual nature.
Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.