Dusseldorf Investors are experiencing historic times on the German stock market. The Dax is currently doing what is probably the best start to the stock market in the past 33 years. The leading German index ended positively on seven out of nine trading days in the 2023 stock market year. The maximum daily minus was only 0.38 percent.
After only nine trading days, the annual profit is already 1100 points, and since the end of September it has already been plus 3200 points. For the capital market expert Thomas Altmann from the investment house QC Partners, this series is “impressive and frightening at the same time”.
This series is so impressive because the important mark of 15,000 points has now been passed. This area was a key support from May 2021 to February 2022.
It is a surprise that the Dax was able to overcome it so quickly and without a previous setback. Also this Friday, the Dax closes in the early evening at 15,090 points, an increase of 0.21 percent. The new high of this upward movement since the end of September is now 15,132 points, the highest price on Friday.
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The weak start to the US reporting season could only hold up the Dax for a short time. Because the figures from the US banks were not well received. The first results show that although Bank of America and JP Morgan had exceeded analysts’ expectations, the papers are giving way.
At the same time, the series is frightening because, from a technical point of view, the Dax is now overbought, i.e. it has risen too high too quickly. Which means: A clear setback is more likely than further so rapidly rising prices.
Yesterday’s trading day showed how quickly something like this can happen. After the US inflation data, the Dax slipped over 150 points within a few minutes on Thursday, until there was clear interest in buying again and the leading index closed above the 15,000 point mark for the first time since February 2022.
Professionals have sold hedges
The fact that the stock markets rose so high so quickly also has to do with developments on the futures market. Because the rally really picked up speed from mid-December, and since then, according to Altmann, the number of open futures contracts has been falling at a rapid pace.
These contracts are often used to hedge against falling prices, so having a lot of outstanding contracts means a lot of hedging and skepticism. But with the sale of such put options, the short sellers have boosted the market.
Short sellers bet on falling prices by borrowing shares from other investors for a small fee and selling them directly. They are betting that the price will fall and that they can buy back the stock at a lower price before the redemption date.
To end their short bets, the pro investors need to buy stocks. In doing so, they tend to support the price. “This closing of the hedging positions has a large part in the current upward movement,” says Altmann.
The fact that many professionals have closed their hedging positions on the futures market is negative for further development in the medium term. “In the past, low hedging activity in the form of fewer outstanding contracts has often heralded a trend reversal,” explains Altmann.
Because without hedging, many professional investors will be forced to sell positions in the first setback or to hedge again. In both cases it is sold. This can then accelerate an incipient price slide.
Constructive investor sentiment
According to the Frankfurt Stock Exchange survey of medium-term oriented private investors and institutional investors, both groups of investors reacted to the strong price gains with sales. According to Joachim Goldberg, who is analyzing the survey, the recovery has caught many on the wrong foot and is now seen as overdone.
According to the behavioral economist, this results in a good mood-related starting point. For those on bearish bets, a retracement as low as 14350/14400 could be enough to close their short positions and support the market. According to Goldberg, the remaining pessimists shouldn’t be able to wait much longer for further price gains.
US reporting season starts – bank stocks fall
But which event could trigger a trend reversal? In addition to the US Federal Reserve Board meeting on February 1, this is primarily the US reporting season, which starts today, Friday, with the first major US banks. “The reporting season will play a key role in deciding the direction of the stock markets in the coming weeks,” agrees Altmann.
The course of the Christmas business in 2022 is important for consumer stocks. This shows how keen to spend or frugal the private buyers who are so important for the US economy are currently. But it is also clear that a surprising event is likely to affect the market more than dates that are known in advance.
Look at individual values
UnitedInternet: A media report on a possible IPO for the hosting subsidiary Ionos is driving United Internet’s shares. The titles of the IT service provider increase by 2.4 percent. United Internet had early discussions with fund managers to get a feel for demand, Bloomberg news agency reported on Thursday evening, citing people familiar with the matter.
Hella: The auto parts maker has benefited from high demand for its products, boosting sales and profits. “This was mainly due to the higher volumes, the passing on of price increases and our efficient cost management,” explained Hella CEO Michel Favre of the higher profitability. The automotive supplier confirmed the annual forecast. In the meantime, the share rose by 0.2 percent to EUR 80.75, but then fell back to EUR 79.90 at the close.
Hugo Boss: After a downgrade, the title of the German fashion company fell by more than two percent to 59.66 euros. Analysts at Bank of America have downgraded the shares to “underperform” from “neutral” and lowered the price target to 50 from 52 euros. It will be difficult for the group to do even better than in the successful year 2022 – especially since it can only benefit to a limited extent from an economic recovery in China, it said.
Automobile Values: Price cuts at US e-car maker Tesla for customers in Europe and the US saw the entire sector plummet. Renault, Stellantis and Volkswagen stocks fell by up to 3.8 percent. The European sector index has fallen by up to 2.4 percent, the biggest daily loss since December 2022. Shares in the US electric car maker have fallen by 0.4 percent on the US stock exchange.
Here you can go to the page with the Dax course, here you can find the current tops & flops in the Dax.