A market phase characterized by great uncertainty.
(Photo: dpa)
Dusseldorf Investor sentiment is reaching new superlatives from week to week. But there is no entry signal yet. This is shown by the current data from the Handelsblatt survey, Dax sentiment, and other indicators.
After evaluating the survey, sentiment expert Stephan Heibel said it was “advisable to take small steps”. With the upward movement since the low for the year last Tuesday, investors would have another chance to sell positions that are no longer suitable for the new stock market world. As a result, other stocks that are less affected by the trouble spots could be collected in the event of another slide.
After a weak start to the week and a new correction low on Tuesday last week, the stock markets turned around. The Dax rose by 1.6 percent in a weekly comparison. In the US, technology stocks are leading the rally, followed by communications and retail. In Germany, too, the biggest loss-bearers of the past few months recorded the highest price gains in the past week.
Nevertheless, the mood remains bad – an indicator that prices are rising again. It has been at such a low level for 27 weeks. By far the longest phase of negative values since the Handelsblatt survey began in autumn 2014. Sentiment has slipped further for a few weeks and is indicating fear and panic.
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And meanwhile, after seven weeks in a row with high levels of pessimism about the future, any hope of improvement is now fading: the central banks will not be able to get inflation under control. There is no satisfactory solution to the war in Ukraine. And China is completely unpredictable with its lockdown policy.
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“From the point of view of sentiment analysis, this is a sign that everyone who had had doubts for months has now sold,” explains sentiment expert Heibel. Last week’s recovery rally was not due to many buyers who believe strongly in prices rising, so-called “conviction buyers”. Above all, there were only a few sellers. The trading volume was correspondingly low.
The five-week moving average, a previously accurate indicator of post-crash reversals, has also fallen to minus 30. This is the second lowest value since the survey began in 2014. Only during the Corona crash did this indicator reach minus 32.
But caution is advised. Despite the small number of buyers, the high cash holdings have drastically reduced over the past few days, according to the more extensive AnimusX sentiment survey. In return, private investors in particular have significantly increased their investment quota.
The data from private investors and institutional investors differ widely. While private individuals are betting on rising prices, professionals are already gearing up for the next sell-off.
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According to the Animusx owner, the difference of opinion can only be resolved by developments in the real economy: Either there will soon be positive developments in the three trouble spots of the Ukraine war, including the gas crisis, China lockdown and high inflation rates. Then institutional investors are under pressure to follow the rising prices and fuel the rally.
Or the rally would run out. That would be the case if there were no positive developments in the real economy. Private investors are then again caught on the wrong foot if they do not liquidate their long speculation in time.
Current survey data
Investor sentiment jumped to minus 3.7 from minus 7.3 in the previous week. This means that sentiment has been negative for the 27th week in a row, by far the longest phase of negative sentiment readings. But the price gains in the second half of the week helped to calm investors’ frayed nerves a little.
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Uncertainty has therefore also decreased. This sentiment value increases from minus 7.7 in the previous week to just minus 3.0 in the current measurement. Investors are still uncertain whether they have now seen the bottom of the bear market or whether they only have to reckon with a short-term recovery.
The expectation of the Dax courses in three months looks as gloomy as in the past few months. The reading of minus 0.9 shows that the bears are still dominant. A majority therefore expects prices to be lower than they are now in mid-October.
Nevertheless, the willingness to invest among the survey participants increased from 2.0 to 2.3. Some investors are obviously trying to jump on the recovery that has started since the low for the year on Tuesday.
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The Euwax sentiment of private investors, which now stands at plus eleven, continues to indicate a high willingness to take risks. It is the highest value in the past twelve months. Plus values indicate a preponderance of call versus put products in the portfolios and vice versa. Since the beginning of June, the positioning of private investors has turned from being strongly defensive – at that time minus ten – to being strongly offensive.
Institutional investors who hedge via the Frankfurt futures exchange Eurex behave completely differently. The put/call ratio has jumped to 2.6, indicating strong demand for put protection. This difference is not visible in the USA, the put/call ratio on the Chicago futures exchange CBOE is close to the average of the past few months.
However, US fund managers remain very defensive. Their investment rate of just 28 percent continues to indicate a high level of cash, with which the capital market experts want to get through the turbulent times. Usually between 60 and 80 percent of the fund money is invested.
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At minus 33 percent, the willingness of US private investors to invest continues to show a very large dominance of the pessimists. 53 percent bears versus only 19 percent bulls. It is the opposite picture to the Euwax numbers in Germany. The “fear and greed indicator” of the US markets, calculated using technical market data, is listed at 29 percent in the area of fear, with 25 percent or more indicating extreme fear.
Investor sentiment on the euro
Last week, the euro hit its lowest level against the dollar since its inception in 2002. While the USA has already raised interest rates significantly in several steps, the European Central Bank is still hesitating. An important reason why parity is in sight.
The mood on the foreign exchange market is extremely bad, which was to be expected in view of the significant slide in prices in recent weeks. But a look at the five-week average shows that sentiment is far from reaching a level that would reflect the negative record in the exchange rate.
In addition, the willingness of investors to invest in the euro is low. Investors are only willing to buy when prices are close to parity. But be careful: Just a week ago, this value was 1.05 euros/dollars, but slipped almost five cents lower due to the downward momentum. Further reductions in the entry level cannot be ruled out.
sentiment on the gold market
The situation is different on the gold market: The mood here is already so extremely negative that a bottom seems closer than with the exchange rate pair euro/dollar. In addition, expectations of gold are clearly positive, so investors are probably only waiting for one reason to grab it.
When it comes to oil, the picture is changing again: Although the oil price has only consolidated a little at a high level, the mood has collapsed to an extremely negative level within a very short time. Nothing good is expected for the future either, pessimists dominate the floor of oil traders.
Mood on bitcoin
The sentiment towards Bitcoin was at an extremely negative level in the previous weeks. After an interim price gain of 15 percent in the past few days, the mood has also improved significantly. Expectations for the future remain neutral, however, with bulls and bears balancing each other out. “The rally still has room for improvement, even if it’s just a short break,” analyzes Heibel.
There are two assumptions behind surveys such as the Dax sentiment with more than 7000 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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