Dusseldorf The German stock market continues to rise. On the very first day of trading in the trading month of May, the Dax marked a new high for the year at 16,011 points. In morning trading, the leading German index was at 15,945 points, an increase of 0.2 percent.
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. Investor pessimism is a good counter-indicator
Normally, when prices are just below a record high, there should be a euphoric mood among investors, with great anticipation about the price gains that have already been achieved and for 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 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. middle of last week.
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, there would have been new entry opportunities.
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.
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 technical indicators signal that the upside is rather slow.
4. Dax price index still has some catching up to do
A look at the Dax price index, which, in contrast to the classic Dax, does not include dividends, shows: This price index is at 6451 points, around seven percent below its record high of 6883 points.
And for Jörg Scherer, technical analyst at HSBC Germany, the development so far gives hope that this price index will rise back to the area of its record high. A seven percent increase in the Dax as a performance index would translate to a level of 17,000 points – plus the dividends, which are also taken into account.
Inflation rate is in focus
At 11 a.m. the first estimate of the inflation rate in the euro area for April will be announced. Analysts polled by Reuters expect the inflation rate to rise slightly to 7.0 percent from 6.9 percent in March.
US stock market expert Koch: “Uncertainty before the tech results”
Ahead of the European Central Bank (ECB) interest rate meeting on Thursday, investors are paying close attention to the new data on price developments. They expect another rate hike. However, it is unclear whether the monetary watchdogs will raise interest rates by a quarter or half a percentage point. The speech by ECB Supervisory Board member Andrea Enria at a conference starting at 1.05 p.m. could provide indications of the extent of the interest rate hike.
Look at the individual values
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. The stock rose 1.2 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 five percent to EUR 32.46 at the opening on Tuesday 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, rose by 1.5 percent on Tuesday.
Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.