Frankfurt On the German stock market, the psychologically important mark of 16,000 points is again in focus. And with it the question: will the Dax reach a new record high in the coming trading days?
At the start of the week, the leading German index was able to hold its own above the round mark and was quoted at 15,965 points on Monday afternoon, down 0.5 percent on Friday’s closing price.
There are several arguments for and against a new record high. The following scenarios are likely in the coming trading days or weeks.
It will not be easy for the Dax to reach a new record above 16,332 points. Should he still make it in the course of the AI euphoria, further brilliant price jumps without fundamental changes are possible as a reward, so-called short squeezes.
However, if the prices start to slide, investors must assume that the support area that has been in place since the beginning of April will be around 15,600 points. The good news: This presumably rapid slide should come to an end quickly, and the Dax will probably continue its upward trend afterwards.
Dax is stuck
Why the Dax should have a hard time on the top
The current situation on the stock market is similar to that of summer 2021. According to the current data from the analysis company AnimusX, investors have a similarly low cash ratio. So there is little money to drive the Dax to a new record high.
At the same time, like two years ago, they bet a lot of money on falling prices. The corresponding short rate is extremely high.
Such a constellation resulted in the following development two years ago: At that time, the Dax tried in vain from mid-August to mid-September to sustainably break the 16,000 point mark.
The situation only cleared up after a slide of 1,200 points at the beginning of October, and the Dax then reached a new record high of 16,290 points in mid-November. A trajectory like mid-2021 is the most likely scenario in the coming weeks, maybe even a month or two.
A new record high should put short sellers under pressure
It may sound contradictory against this background, but investors should not rule out a new record high in the coming days. Although it is not the most likely scenario in view of the low cash ratio, it is possible due to the euphoria surrounding artificial intelligence. The record high is also supported by the fact that the leading US index S&P 500 has meanwhile passed the important mark of 4200 points and the way for higher prices is clear on the other side of the Atlantic.
If the Dax continues to climb as part of this euphoria, the many “shorties” will be under pressure to close their positions. The first indication of a new record high, i.e. prices above 16,332 points, would be quotations above 16,144 points. This in turn should lead to nice short squeezes on the Dax.
Because such short speculation works like a short sale. The underlying asset is sold first in the hope of being able to buy it back later at a lower price. If the underlying asset is bought back when the short position is closed, this supports the market.
What to watch out for in the event of a price slide
The past trading week has also led to a new insight that fits into this scenario. On Wednesday, the Dax slipped into the support zone that has been in place since the beginning of April at 15,629 points.
However, it was not short sellers who subsequently caused prices to rise again, but new investors who want to benefit from the ongoing rally. Because the short quote has continued to rise since then and, according to the AnimusX data, has even reached an extremely high value.
Looked at another way: the still valid support zone at around 15,600 points is not enough for short speculators. Apparently they want to see lower prices before reaping their profits and are thus a support to the market.
Therefore, there is a good chance that the market will make a new two-month low in the coming days. At the same time, the short rate is so high that it should also support the market in the long term.
Lira falls to a new record low
With the appointment of Mehmet Şimşek as Turkey’s finance minister, many commentators have high hopes that the exchange rate of the currency will stabilize. But there is little to see of that on Monday. In return, the dollar rose to a new record high of 22.26 lira. Since the beginning of the year, the Turkish currency has fallen 13 percent against the greenback.
>> Read also: Finance Minister Simsek announces change of course in financial and economic policy
For Ulrich Leuchtmann, Commerzbank’s foreign exchange expert, one thing is certain: “If the current monetary policy is continued, it will reduce the value of the lira at an increasing rate. And only a 180 degree turn can prevent that.”
In his opinion, the lira crisis of 2018 has shown impressively that a short-term monetary policy turnaround at the time of the greatest need for devaluation is not a sufficient signal for a sustainable turnaround. Back then, the central bank cut interest rates far too quickly after the first stabilization in lira exchange rates had occurred. “Perhaps the market will not make the mistake of hoping for a sustainable turnaround too quickly again,” says Leuchtmann.
Turkey’s May inflation figures were released this Monday. Annual inflation was 39.6 percent after 43.7 percent in April, according to data from the statistics office. Experts had largely expected this decline. This had little effect on the exchange rate of the lira.
Because the exchange rate policy is not sustainable, but only served to disguise the underlying weakness of the lira in the run-up to the election, the reduction in inflation is also unsustainable, explained Leuchtmann before the publication. “In general: the confidence of the public and the market in the official inflation figures is likely to be low after all the personnel changes in the statistical office ordered by presidential decree.”
Oil prices rise after OPEC meeting
The announcement of a significant production cut by Saudi Arabia boosted oil prices at the beginning of the week. On Monday afternoon, a barrel (159 liters) of North Sea Brent for delivery in August cost 77.48 US dollars. That was 1.40 cents more than on Friday. The price of a barrel of American West Texas Intermediate (WTI) grade for delivery in July rose $1.30 to $73.02. During the night, the prices had risen even more significantly at times.
After a turbulent OPEC meeting, the oil giant Saudi Arabia announced on Sunday a unilateral cut in its production by one million barrels a day, initially for July. The country actually leads the twenty or so states of the OPEC plus oil cartel together with Russia. In contrast to Saudi Arabia and other OPEC countries, the United Arab Emirates could increase their production in the coming year.
Look at individual values
Deutsche Telekom: The titles recovered at the top of the Dax by two percent from their nine percent slump on Friday. News about a possible competition from Amazon in the USA had massively burdened the T-Aktie and the papers of the US mobile communications subsidiary of the Bonn company, T-Mobile US.
Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.