It is a market phase characterized by great uncertainty.
(Photo: dpa)
Dusseldorf Many investors viewed the past rally on the German stock market with skepticism. Possibly rightly so. Because the leading index Dax is at risk of being sold out in the next few days. This is the result of the Handelsblatt survey Dax-Sentiment among more than 7000 private investors.
The skepticism is reflected in the mood of the survey participants, the investor sentiment. It fell from plus 2.7 in the previous week to minus 0.9. This value last dropped more sharply in mid-June. In the following three weeks, the Dax lost seven percent and fell to a new low for the year.
Skepticism is actually a good basis for a rally. Normally, potential buyers are not yet invested. You can then gradually switch to the buyer side when prices rise and thus drive prices higher and higher. That’s why stock market jargon talks about a rally moving up a wall of fear.
At the same time, skepticism is a safeguard that prices won’t fall too far. Investors expected such a development and positioned themselves accordingly. Either by selling their positions in advance, or by using special financial products to protect themselves against price losses. It’s a kind of safety net.
Top jobs of the day
Find the best jobs now and
be notified by email.
But there is currently a special case. Although there is great skepticism among investors, they are heavily invested in the market, as sentiment expert Stephan Heibel says: “It seems that our survey participants reacted too quickly to the sideways movement: the investment rate is high, they only have cash reserves still a few.” He evaluates the weekly survey for the Handelsblatt.
So many investors are already invested. Their skepticism is mainly due to the fact that they are unsure whether this was the right decision, explains Heibel: “It makes a difference whether the bad mood among investors is due to the fact that they are underinvested during the rally – or from today’s perspective : were – or whether the bad mood is due to the fact that you are now extremely unsure about your high investment rate.”
This uncertainty is also reflected in the low willingness to invest. This has fallen from 1.2 to 0.7 despite the recent price losses and the resulting more favorable entry level.
According to Heibel, this leads to a paradoxical situation: “If one had previously waited for a setback in order to buy more, now after the setback has occurred there is increasing uncertainty and therefore also a declining willingness to invest,” says the managing director of the analysis company AnimusX . The self-satisfaction among the survey participants has also vanished. The value of minus 1.8 indicates a renewed unrest.
In this mixed situation, investors’ skepticism combined with the low cash and high investment ratio is a potential risk factor. “Falling prices are not met with thick hedging positions, but with premature investment by investors,” explains Heibel.
Because, as the Euwax sentiment of private investors surveyed by the Stuttgart Stock Exchange shows, many investors have sold their hedges into the rally. Sentiment has jumped from an extremely negative value in the previous week (minus 16) to just minus seven. The lower the index is in the red, the more investors protect themselves against falling prices.
So if the US inflation figures on Tuesday are higher than expected or if the US Federal Reserve signaled on Wednesday that it would raise interest rates longer and higher than the market had previously expected, this could end in a sell-off on the Dax.
Conversely, however, positive surprises can lead to a dynamic increase. Then it could be foreign investors in particular who buy. This group was already a major contributor to the recent rally in October and November.
Heibel’s conclusion is therefore: “I would describe this week’s sentiment data as explosive against the background of political developments: I cannot predict the direction, but there are many indications that there will be a stronger movement.”
The other survey data
Professional investors behaved differently in this country than private investors. They had initially bet on further rising prices in order to compensate for their performance deficit at the end of the year as much as possible, observed Heibel: “Now we hurriedly switched to hedging.”
This is shown by the put-call ratio of the European derivatives exchange Eurex, where professionals trade. It indicates the ratio of traded put options – so-called puts, which increase in value when prices fall – to call options. The latter are so-called calls, which increase in value when prices rise. The ratio of both products has jumped to 2.6 percent and shows high protection purchases by professionals.
There is no sign of this in the USA, the put-call ratio of the largest US futures exchange CBOE is listed at an average level. However, US fund investors have reduced their investment ratio from 64 to 56 percent. “This puts fund managers in a more defensive position again,” notes Heibel.
Among US private investors, the pessimistic “bears” currently outweigh the optimistic “bulls”. The difference between the two groups is 17 percentage points. 42 percent bears versus only 25 percent bulls.
Meanwhile, the S&P 500 technical fear-and-greed indicator shows moderate greed at 58 percent. The Short Range Oscillator has dropped to minus two percent, which can be considered a mostly neutral condition.
Do you want to take part in the survey? Then let yourself be informed automatically 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.
More: Investors make these ten mistakes from the point of view of stock market psychologists