Dusseldorf Investors are currently realizing their profits on the German stock market: The record high of the leading index Dax of 16,427 points on June 16 was followed by five days of losses in a row, and the Frankfurt stock market barometer fell by around three percent overall.
Such profit-taking shouldn’t really come as a surprise – after all, the Dax has risen by more than 35 percent since the beginning of October last year. But the market mood (sentiment) has turned completely, as the Handelsblatt survey Dax-Sentiment among more than 8000 private investors shows.
Accordingly, the mood has fallen from an extremely positive 3.4 to an extremely negative minus 3.3 points – a difference of 6.7 points. Complacency also drops to minus 3.1 points.
The survey participants are accordingly skeptical about the future: the expectation for the development of the Dax remains negative at minus 0.9 points (previous week: minus 2.0). The willingness to invest is also low with a value of minus 0.9.
The last time there was a stronger slump in investor sentiment was at the end of November 2021. At that time, too, the Dax had reached a record high shortly before, followed by a downward trend for ten months.
There were also similarly high extreme values several times during the corona crash: At the beginning and end of February, the mood collapsed to a similar extent, while the stock markets crashed and only found a bottom in mid-March.
However, such a change in mood is not always followed by a price crash. During the Corona year, for example, investor sentiment also collapsed in June, while prices then continued to rise.
Noticeably strong safeguards
Sentiment expert Stephan Heibel, who evaluates the weekly Handelsblatt survey and supplements it with other indicators, is therefore finding it difficult to interpret the result: “Unfortunately, we cannot derive any useful forecast from the extreme situation in investor sentiment mentioned. So we have to work on the content.”
Here he refers to noticeably strong hedging positions that both professional and private investors entered into in April and have not redeemed to date. At that time, the Dax was around 15,800 points.
With such put options, investors either protect themselves against falling prices, or they try to profit directly from falling prices – in stock market jargon this is called “going short”. Put simply, when an investor buys a put product on the Dax, the bank has to sell the Dax in the background. When the derivative is sold, the bank has to buy back the Dax.
Professionals rely on deeper courses
If many hedges are redeemed, this stabilizes the prices. Heibel suspects that this could soon be the case for many private investors: “Since we have seen new all-time highs in the meantime, which should have gotten on the nerves of short-positioned investors, some will stock up below 15,800 points.” He suspects that they Close positions at 15,600 and 15,700 points.
Heibel assesses the situation among institutional investors differently: “They don’t go short without reason. They have valuation models and are obviously convinced that the Dax should be significantly lower.”
The managing director of the analysis house AnimusX believes that they are betting on significantly lower courses. “From this perspective, the Dax could fall below 15,200 points before institutional investors buy to cover and stabilize.”
No buy prices yet
Heibel, who has his own market letter called Heibel-Ticker, therefore sees no buying prices for investors at the current Dax levels. “We have been emphasizing for a few weeks that in the current state of the market, a moderate cash position is advisable,” he says. Significantly falling courses could then be used as an entry opportunity. “Sentiment values have not yet collapsed enough to switch to the buyer side.”
In this case, according to sentiment theory, one could assume that the majority of potential buyers have already sold. A few buyers would then be enough to move the price back up.
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