Dusseldorf At its peak, the Dax has risen by around 550 points this week – but investors should still look at the bottom again. In the leading index, this means the area around 15,000 points up to 14,800 points.
The index failed to clear the three major moving average lines: the 38-, 100-, and 200-day moving averages for the short, medium, and long-term trends. That should have prompted some investors to sell.
As a result, the yield on ten-year US government bonds climbed above the important two percent mark around 6 p.m. and is currently trading just below it at 1.9979 percent. As a reminder, a few months ago, according to the Bank of America survey, international fund managers wanted to sell stocks when they hit this mark.
This reaction was clearly visible in the US stock market. The Nasdaq 100 technology index slipped 2.3 percent due to increased interest rate expectations. Rising interest rates are weighing on growth stocks – a typical behavior, especially since, according to the Chicago Futures Exchange, 89 percent of professionals now expect an increase of 50 basis points on March 16th. That would be an unusually large step for the US Federal Reserve.
The heavy loss of minus 1.5 percent in the industry-heavy Dow Jones index was not a good sign. Industrial stocks are more likely to benefit from higher economic growth, which is usually associated with rising interest rates, as the example of Siemens on the German stock market shows.
Banks are also seen as beneficiaries of rising interest rates. But the courses of the US banks all gave way yesterday, Thursday. The fear behind this: The US Federal Reserve could end economic growth by raising interest rates too high, which economist Mohamed El-Erian recently warned against.
Two hedge funds benefited from the drop in the Delivery Hero share price
At least two hedge funds should have been happy about the historical price slide of more than 30 percent at the Dax member Delivery Hero: According to the data of the Federal Gazette, Citadel Advisors Europe and Canada Pension Plan had bet on falling share prices at the food supplier. With a total of 1.08 percent of all freely tradable titles, their positions were rather small. According to data so far, the two funds maintained their ratios on Thursday.
These hedge funds, also known as short sellers, bet on falling prices with so-called short sales. To do this, they borrow shares for a fee and sell them in the hope of being able to buy them back at a lower price before the return date. The difference is the profit. If the stock rises unexpectedly, the hedge funds make a loss.
On Friday, the price losses initially continued, the Delivery Hero share slipped at its peak by more than 13 percent to 40.29 euros, the lowest level since mid-2019. But from 10.30 a.m. the tide turned, and then the prices rose again. The shares are currently trading at EUR 43.86 again, a drop of only 5.7 percent.
Such sell-offs of stocks or indices almost always end according to the same scheme: The highest trading volume of the session prevails in the area of the lowest price. In this specific case, more than 22,000 shares were bought and sold at 10:28:15 a.m. at a price of EUR 41.10, by far the highest value in continuous trading. It then went down slightly for a few minutes, but then smaller orders with sometimes only 19 or 30 shares traded ensured that the Delivery Hero share then climbed up again.
Of course, this recovery is no guarantee that the Delivery Hero stock will not fall further in the coming days and weeks. But the worst should be over for now. The staggering total of 22,000 shares suggests that hedge funds reduced their short quota by buying back shares.
Now, of course, the analysts are adjusting their price targets significantly downwards. The British investment bank Barclays has cut its target from 153 to 80 euros, but left the rating at “Overweight”. That would still be double the current price. Bryan Garnier lowered the price target from 160 to 100 euros and replaced the previous buy recommendation with a neutral rating.
Such a slide in prices is unlikely to leave the short seller market unscathed in the coming days. Hedge funds are focusing on all stocks that may find it more difficult to break even in an environment of rising interest rates.
High short rate at Home 24
One stock that short sellers have been targeting for some time is the online furniture retailer Home 24. According to data from the Federal Gazette, the so-called short sale rate is 9.78 percent (as of Wednesday, February 9). Values below 0.5 percent are not taken into account.
Company metrics meet some hedge fund conditions. The loss per share is getting smaller every year, but was recently still minus 0.61 percent. In addition, Home 24 recently took over the Butlers chain of stores with 130 branches in eleven countries.
The interesting thing is that the short sale rate is still at a high level, even though the stock has already slipped almost 60 percent in the past twelve months. The fact that the short sellers are still not closing their positions and taking profits, but are instead counting on falling prices, is not a good sign for the shares.
“Restructuring cases and overvalued stocks in particular are shorted,” Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt’s Goethe University, observed three weeks ago.
On the other hand, the high short rates offer short-term upside potential. Because it could be difficult for the hedge funds to buy back the borrowed shares in a way that protects the price. Almost eleven times as many shares are shorted on Home24 as are traded on Xetra and Tradegate on average.
For private investors who hold these shares, this means that even if the short sale rate in the Federal Gazette is only published a day late, they can use the high trading volume to estimate when the massive share buyback by hedge funds is likely to end. There could be an exit opportunity for them.
Look at other individual values
Mercedes Benz: A gain above market expectations encouraged investors to buy. The carmaker’s shares rose by 6.2 percent and are the frontrunners in the Dax.
Fresenius Medical Care: A negative analyst comment sends the shares plummeting. The shares of the dialysis specialist fall by 3.9 percent to 56.76 euros. The experts at the investment bank Jefferies downgraded the title to “underperform” and lowered the price target to 53 from 56 euros.
Carl Zeiss Meditec: Investors are responding to the company’s numbers with sales. The shares of the medical technology company fall by two percent. One stockbroker criticized that sales and profit margins had clearly missed market expectations. “The only glimmer of hope is the incoming orders.”
Instone: A planned EUR 50 million share buyback will lift the stock to the top of the SDax. The real estate company’s shares rose 4.4 percent.
Siemens: Siemens shares are trading this Friday with a dividend discount of EUR 4.00. Compared to the previous day’s close of 144.68 euros, this means a minus of 2.8 percent. In the first hour of trading, the paper is only 1.8 percent and is traded at 142.04 euros.
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