Dax is facing a countermovement after the sell-off – but there is no trend reversal in sight

Dusseldorf After the sell-off last Friday, the mood among investors is extremely bad. According to the sentiment analysis, this is a so-called counter-indicator, which will subsequently trigger a counter-movement. However, the current sell-off will not be enough to completely stop the downward spiral. A sustainable trend reversal is therefore not yet in sight.

All this can be derived from the data of the current Handelsblatt survey Dax-Sentiment. A week ago, the survey of more than 6,500 investors showed that only a panicked sell-off should end the bumpy start to the year on the German stock market.

Because only part of this forecast has come true. There was a sell out. But the other part is missing: According to sentiment expert Stephan Heibel, who evaluates the weekly survey, there is still no sign of panic among investors.

Panic would have meant that not only was the current mood clouding over, but that optimism about the future would also have collapsed, i.e. the expectation of the Dax price development in three months. But that was not the case.

The development of the five-week average also speaks against a sustainable bottoming out of the prices. In the past seven years of the sentiment survey, such a trend reversal was always announced when the line had reached a negative extreme value. A look at the chart shows that this indicator is only trading just below the zero line.

“I conclude from this that – if there should be a countermovement this week – the downward slide is not yet over,” comments the sentiment expert. “Investors should brace themselves for a volatile few weeks as bulls’ bullish optimism about the future will be tested again and again.”

The fact that short-term investor sentiment has collapsed completely speaks in favor of a countermovement. That is why Heibel expects prices to rise again in the coming trading days. “Prospective buyers could soon be pouring into the market and collecting their first bargains,” says the owner of the analysis company AnimusX.

The slump in sentiment is a result of the sell-off that has been looming over the past few weeks and gained momentum on Friday. In the meantime, the Dax was down 2.5 percent on a daily basis. In the end, there was a minus of 1.8 percent in a weekly comparison.

Interest rate fears were at the root of Friday’s accelerated sell-off. Since November, new forecasts on the timing and extent of interest rate hikes in the USA have been published almost every week. The background is the assumption that the economy in the USA will develop more strongly than initially expected. The US Federal Reserve recently forecast three interest rate hikes for the current year, but many experts are now anticipating four hikes.

Stock market experience shows that markets are more volatile in the run-up to such interest rate increases. However, investors fear that the interest rate hikes could come too quickly. At the latest with the first increase, however, this uncertainty will be over. That would be the case in the US in March. The first indications of how high the first increase will be could be given on Wednesday this week after the US Federal Reserve meeting.

Current survey data

The mood on the stock market has been getting worse since Christmas. And since last Friday, this depression among investors has reached an extreme: the short-term sentiment falls by a further 3.6 points to minus 5.3. This value has not been so negative since November 2020, when the uncertainty surrounding the US presidential election weighed on sentiment and there was still no vaccine against Corona.

Uncertainty is also increasing. With a value of minus 4.8, the extreme values ​​from the beginning of December, when the omicron mutation of the corona virus became public, have not yet been reached. Previously, in November 2020, the level of uncertainty was similarly high.

Investors no longer understand the world: Corona is almost defeated and an economic upswing is in sight, but the stock markets are still refusing to climb to new highs.

But investors are reacting defiantly to this extremely bad mood and the high degree of uncertainty. Bulls dare to do something again: The expectation that the Dax prices will have risen in three months has increased to 1.9 after a neutral value of 0.0 in the previous week.

This optimism is followed by the first intentions to buy: the willingness to invest has turned from minus 0.4 in the previous week, when intentions to sell dominated, to plus 0.6 again.

The Euwax Sentiment of the Stuttgart Stock Exchange, where private investors trade, is listed at minus five. If the value is negative, there are more put than call products in their portfolios.

But even the value of minus five still does not show the level of panic that would be required for a sustainable soil.

Should a counter-movement start from this level, the ground would not be sustainable in the long term. “Only a value of minus ten would be sufficient for a change in trend,” says Heibel.

The behavior of professionals who hedge via the Frankfurt futures exchange Eurex is also no indication that prices are bottoming out: the put/call ratio has fallen to 1.4 and even shows an increasing appetite for call options, with which rising courses is bet.

In the USA, the put/call ratio of the Chicago futures exchange CBOE shows no particular activity, people are more in a wait-and-see position there. The investment ratio of US fund managers has surprisingly collapsed to 57. Fund managers obviously prefer cash in this uncertain market phase.

The bull/bear ratio of US private investors has slipped to minus 26 percent: Only one in five private investors is optimistic about the stock markets, almost 50 percent fear falling prices.

Short-term technical indicators show negative extremes. The market is oversold – from this perspective, too, it is likely that the market will start a short-term countermovement.

There are two assumptions behind surveys such as the Dax sentiment with more than 6500 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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