Dusseldorf The Dax was unable to maintain its gains on Wednesday and closed in the red. The leading German index ended trading 0.3 percent down at 15,370 points. In the morning it was still up 0.8 percent, the daily high of 15,542 points was almost 700 points above Monday’s weekly low.
At the start of the week, concerns about a Russian invasion of Ukraine caused the Dax to slide. After Russia withdrew some of its troops from the border, prices rose again. “After the big plus in the German share index on Tuesday, investors are now getting the uneasy feeling that they are no smarter than at the start of the week, when a war in the region seemed dangerously realistic,” says Konstantin Oldenburger, market analyst at CMC Markets.
The Dax is thus still in the downward trend that has prevailed since the beginning of the year. The negative trend would only end if the index climbed above the 15,620 point mark on a sustained basis, i.e. at the end of the day and the day after.
This is where the index failed last week – and the chances of clearing the hurdle have decreased. These three reasons speak in favor of an intact downward trend:
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1. Private investors lack the money
Retail investors are more likely to fail as the motor for an end to the downtrend. According to the data from the analysis house AnimusX from the weekend, they increased their investment quota compared to the previous week, so they have too little cash to buy the Dax further up.
This scenario could already be seen last week when the Dax climbed to 15,614 points for a few minutes, but a lack of demand caused the leading index to slide again. The failed attempts in August and September to surpass the 16,000 point mark were also accompanied by a high investment rate.
2. Pros prefer short-term trades
Many investment professionals have done a good job in recent weeks because they have benefited enormously from the high price fluctuations. This is suggested by the weekly surveys conducted by the Frankfurt Stock Exchange among medium-term institutional and private investors.
Since mid-January, these pros have used price increases to sell and immediately bet on falling prices. The course that followed always proved them right. The profits from the short position were then realized at significantly lower price levels and the professionals went “long” again.
Some professionals even managed another feat: They realized their short profits at prices of around 15,200 points, but only half then backed up prices again. Those pros who held back were rewarded with entry prices well below 15,000 points this Monday. “As a rule, one trusts the professionals, while the private ones are often seen as a counter-indicator,” says sentiment expert Stephan Heibel from AnimusX.
It is unlikely that the pros will stop this behavior, e.g. expect courses towards 16,000 points. The short-term trades in the past few weeks have been too successful for that.
The high trading volume, coupled with the significant price fluctuations in the past few days, also signals that the market is currently not good for long-term believers – short-term trades are more in demand. To put it bluntly, it’s a gambler’s market.
3. Massive resistances in the 15,620 point area
According to the technical analysis, not only the downward trend line is in the area of 15,620 points, but also a hodgepodge of important resistance that needs to be overcome.
Among other things, the three most important average lines are noted there: the 38-day line for the short-term, the 100-day line for the medium-term and the 200-day line for the long-term trend. An unusual chart technical situation that underscores the importance of the 15,620 point level.
Concerns about interest rates are eclipsing the Ukraine conflict
There is currently a change of subject in the market. The Ukraine conflict is losing some of its horror for the stock exchanges. In return, the interest rate issue is back on the agenda. The unexpectedly sharp rise in US producer prices on Tuesday pushed the yield on the ten-year US Treasury bond back above the two percent mark. Most recently, this value was 2.040 percent.
According to the so-called Fed Watch Tool of the Chicago derivatives exchange CBOE, the US Federal Reserve Chairman Jerome Powell is likely to raise interest rates by 50 basis points on March 16th. At least that’s what 54 percent of professionals expect. The others believe in an increase of only 25 basis points.
Overall, investors were more daring again, which was also reflected in the bond market. Government bonds, often used as a hedge in portfolios, were sold, pushing yields on ten-year Bunds up by one and a half basis points to as much as 0.311 percent. The interest rate was thus higher than it had been since December 2018. “Our base case remains that inflationary pressures and central banks’ urgency to tighten monetary policy will continue to push rates higher,” ING analysts said.
Look at the individual values
Travel values: Shares from the travel industry were in demand again among investors. Lufthansa shares, for example, climbed 1.95 percent in the MDax. With 7.81 euros, they are gradually aiming for the eight-euro mark again.
Following a buy recommendation from Bank of America, the stocks of the airport operator Fraport even rose by 4.2 percent, which gave them their highest level since November. You were the leader in the MDax. The titles of the travel group Tui closed 2.3 percent up.
Delivery Hero: After a downgrade by Deutsche Bank, the shares temporarily fell by more than seven percent, but limited their losses to 0.3 percent by the end of trading. Since the beginning of the year, the minus has added up to almost 50 percent. The analysts lowered the rating to “Hold” from “Buy” and justified this, among other things, with limited transparency in the refinancing of the convertible bonds. In addition, the growth dynamic is decreasing, while the food delivery service remains in the red. There is a risk of a capital increase.
MTU: The engine builder is still feeling the consequences of the corona pandemic. In terms of sales, the company missed the self-imposed mark of 4.3 to 4.4 billion euros. When it comes to profits, however, MTU benefited from its austerity measures. As a result, the share rose by five percent and, at EUR 211.70, reached its highest level since the beginning of August 2021.
Norma: The papers rose by up to 8.3 percent to a three-week high of 34.18 euros. Thanks to cost-cutting measures, the automotive supplier achieved its reduced targets for the year as a whole. However, the margin was a little worse than hoped, said a trader. The increase at the close of trading was 2.8 percent.
ericsson After indications of corruption in the Iraq business, the shares of the Swedish network supplier came under pressure on Wednesday. The titles slipped 13.4 percent in Stockholm and were listed as low as they had been in more than three weeks. On Tuesday evening, the group disclosed the results of an internal investigation from 2019, which lined up suspicious payments and allegations of misconduct.
Payments for using alternative transport routes related to bypassing Iraqi customs were identified at a time when militant organizations, including the Islamic State, controlled some transport routes.
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