Dusseldorf After the turbulent course of trading the previous day, the situation on the German stock market eased on Wednesday. The Dax closed 0.8 percent higher at 15,365 points. In particular, cyclical stocks such as the carmaker were very popular with investors. BMW, Volkswagen and the VW umbrella holding Porsche SE all recorded a price increase of two percent and more.
Investors shouldn’t overestimate today’s easing path. After such a significant price slide, the first bargain hunters come into action. In addition, shortsellers are starting to reap profits by selling their put derivatives, which rise when prices fall. This also ensures rising prices.
Because short speculation works in principle like short sales, only that the bank takes care of the processing in the background. When buying a short product, the underlying asset is sold first and then bought back when it is sold.
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The Frankfurt benchmark is now facing a directional decision. Holds the important mark of 15,000 points? The Dax has stopped short of this mark twice in the past few weeks. Last Monday, the index slipped to 15,019 points before buyers came back into action. The stock market barometer was back at 15,695 points on Thursday.
So far, every setback has been an opportunity to buy. Does this scenario repeat itself? Will the 15,000 meter mark hold up? There are several indications that investors should abandon hopes of a quick return towards 16,000 points.
1. Greater buying interest only below 15,000 points
According to the investor survey of the Frankfurt Stock Exchange last Wednesday among medium-term private investors and institutional professionals, investors are demanding a higher risk premium, i.e. cheaper entry prices. Behavioral economist Joachim Goldberg, who evaluates the weekly survey of the stock exchange, stated on Wednesday: If the prices start to slide, there would only be demand again below 15,000 meters on the bottom.
This view is also confirmed by the data from the analysis company AnimusX. In its weekly survey, professionals and private investors are also asked about their entry level. The greatest interest in buying is around the 15,000 meter mark, albeit with a falling level compared to the previous weeks. There is great interest in buying around 14,800 meters.
2. US rates still have potential
Yesterday’s trading day showed how sensitively the stock markets react to rising interest rates. It is no coincidence that the lowest DAX listing on Tuesday at 15,233 points was just a few minutes after the trend-setting ten-year US government bond’s highest yield of 1.56 percent. After that, the yield fell to 1.51 percent and the leading German index recovered. This value is currently 1.517 percent, which eases the situation on the stock markets. The yield on ten-year federal paper has also fallen to minus 0.21 percent after minus 0.175 the previous day.
It is therefore clear that interest rate policy is and will remain the big issue on the stock exchanges. And the US Federal Reserve is currently signaling tapering to the financial markets, i.e. a cutback in bond purchases, in November. Thomas Altmann from the investment house QC Partners has observed the members of the US Federal Reserve: “The number of those who publicly pronounce the word tapering is growing”.
There is much to suggest that US yields will continue to rise. A similar scenario shaped the markets at the beginning of the year. At that time, the yield on a ten-year US government bond climbed to 1.74 percent before the interest rate hike was slowed down by the central bank, which at the time promised a further loose monetary policy.
With the rise in interest rates, bonds are once again becoming real competition for stocks, especially in the USA. And rising interest rates increase companies’ financing costs and thus depress profits.
3. Possible US shutdown has not yet been priced in
The struggle to raise the US debt ceiling is starting a new round this Friday. The next vote is due. Such discussions almost always last until the last second, the stock exchanges have already got used to it. In the past, such “shutdowns” only lasted a few days or hours, which kept the consequences within limits – or weeks, which can lead to considerable economic upheaval.
Representatives of the US Federal Reserve are already warning of the effects of a possible default on the financial markets. That could lead to an “extreme reaction of the markets”, quoted the “Financial Times” John Williams, the president of the Federal Reserve Bank of New York.
4. Many technical indicators urge caution
It’s not just seasonality that investors should be aware of right now. September is the weakest stock market month of the entire year, and the following October is not exactly a bearer of hope.
The market breadth has also decreased significantly, for example. The current bull market is being carried by fewer individual stocks, which is a warning signal. The technical analysts at HSBC Germany have calculated that the 50 percent limit will come more into focus on the US stock markets. Less than half of the titles have caused prices to rise in the past few weeks. That is not sustainable.
From a technical point of view, an important volatility indicator (technical jargon: Bollinger bands) continues to signal greater price fluctuations because it has narrowed significantly. According to the technical analysts at HSBC Germany, the two limits of the volatility indicator are closer together than ever before in the history of the DAX. For Jörg Scherer from HSBC, “the next impulse to move is threatening to become fast, dynamic and sustainable”.
Look at individual values
Airbus: The papers rise by 3.3 percent to 117.16 euros. The analysts at Bernstein upgraded the stocks to “Outperform” from “Market-Perform” and raised the price target from 121 to 142 euros.
Verbio: The titles initially climb 9.1 percent to a record high of 59.25 euros – but fell slightly again over the course of the day. At the close of trading on Wednesday, a profit of at least 4.8 percent remains. Since the beginning of the year, the titles of the biofuel manufacturer have already increased by around 77 percent. The private bank Hauck & Aufhäuser has raised the price target for Verbio from 56 to 80 euros and left the rating at “Buy”. All over the world, governments have set themselves ambitious goals to reduce greenhouse gases, wrote analyst Alina Köhler in a study published on Wednesday. To achieve this, CO2 emissions in the transport sector must be reduced. Verbio is available as a partner with suitably tailored solutions for everything to do with biofuels.
Gea: The plant manufacturer, which produces for the food and beverage industry, wants to become more profitable and is therefore continuing to turn the cost screw. Between 2022 and 2026, optimization in purchasing and production should generate a total net contribution to operating profit (Ebitda) of 150 million euros. Sales should increase by four to five percent annually through new machines in production until 2026. This news lets the share rise by a good two percent.
Gold price is recovering again
The rising bond yields yesterday Tuesday resulted in significant sales in gold. The price for a troy ounce (31.1 grams) has now fallen below $ 1730, the lowest level in seven weeks. The price continues to fall on Wednesday, the yellow precious metal is trading at $ 1,730, down 0.2 percent.
Commerzbank raw materials analyst Carsten Fritsch also reminds of the importance of the US debt ceiling. If there is no agreement by October 18, there is a risk of default with unforeseen consequences. In his opinion, the price of gold does not currently reflect this risk. “The market would do well not to completely ignore the risk,” says the expert.
What the Dax chart technology says
For three months, the Dax has moved between 16,000 points on the top and around 15,000 points on the bottom. After the price slide yesterday, Tuesday, the focus is on the sub-page, which for Jörg Scherer, technical analyst at HSBC Germany, has “a very strategic character”. This is also where the 200-day line is currently located, which is mainly observed by long-term investors.
Last year there was a correction in September and October that ended at the end of October. The sell-off accelerated when it fell below the 200-day line. Therefore, the 15,000 mark now plays a decisive role.
A downward price gap was also torn on yesterday’s trading day. Such gaps arise when the highest level of a trading day has remained below the lowest level of the previous day and are considered a sign of weakness. Specifically: on Monday the lowest price was 15,552 points, the highest price on Tuesday was 15,542 points. As long as this gap remains open, i.e. the Dax does not reach 15,552 points, the technical situation remains tense.
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