The past week of trading was extremely nerve-wracking for investors. How will it go on?
(Photo: dpa)
Dusseldorf Despite the price slide on Monday: Investor sentiment has developed constructively and will allow another year-end spurt in the coming days. According to the latest data from the Handelsblatt survey Dax Sentiment, the falling prices are just a healthy breather that could soon be replaced by a year-end rally. Sentiment expert Stephan Heibel says after evaluating the survey: “At least no crash is to be feared based on the current sentiment data.”
Because the dangerous euphoria among investors, which still prevailed last month of November, has completely disappeared. According to the sentiment analysis, euphoria is a contra-indicator because, to put it simply, a lot of investors are already invested and there are no other buyers.
In the meantime, this mood has collapsed and is on a neutral level. The overconfidence at the time, which often led to incorrect risk assessments, is also over. There is now a high level of uncertainty.
The shortcoming of the current survey: The optimism for the future and the willingness to invest have also decreased – but they are still at a high level. In the short term, the Dax should find it rather difficult to get started with the hoped-for end-of-year spurt. “It can take a few more days before optimism about the future rises again and thus generates willingness to invest in new share purchases,” explains Heibel.
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Countermovement in the euro exchange rate is imminent
The sentiment on the currency market is particularly striking at the moment. The euro is unpopular and the mood is on the verge of a doomsday scenario. At the same time, future expectations for the euro against the dollar have fallen to an extreme.
If both indicators run in parallel, the dominant movement, i.e. the decline in the rate against the dollar, could continue a little longer. At some point the sell-off could end, and then the exchange rate would rise if the trading volume was low. “We are already very close to this point,” explains Heibel.
From a fundamental perspective, the sell-off is hardly surprising: while the US Federal Reserve is tightening its monetary policy more quickly, the ECB is sticking to its loose stance and ignoring inflationary pressures. Heibel believes that anyone looking for a stable currency must currently prefer the dollar to the euro.
Current survey data
The Dax fluctuated strongly in the past week. After the tightening of monetary policy in the USA, the index rose significantly. However, the ECB’s adherence to the loose monetary policy then led to a sell-off, which brought the stock market barometer back to the level it was before the US interest rate decision. How did investors react to the development?
Investor sentiment has suffered from the high volatility and has slipped slightly back into the red after a value of plus 0.8 in the previous week. But the minus 0.5 indicates an overall neutral mood. At the beginning of November there was still extreme euphoria with a plus of 6.0.
The uncertainty among investors has increased more than the short-term sentiment. Complacency has slipped from minus 0.7 in the previous week to minus 3.3. One possible explanation: This uncertainty reflects the contradicting reaction of the stock markets to central bank decisions.
After three strong weeks, the future expectation has now decreased slightly to just 2.0. The uncertainty has an impact on expectations of future developments. There are significantly less bullish investors than there were a week ago. Correspondingly, the willingness to invest also drops by 1.7 points to 0.9. “Investors are saying goodbye to the Christmas holidays,” Heibel comments on this behavior.
The Euwax sentiment of the Stuttgart Stock Exchange, which is relevant for private investors, has risen slightly and shows an increased risk appetite. The value of six indicates that investors are increasingly speculating on rising prices and neglecting hedging. A positive value for this indicator shows an overhang of call versus put leverage products and vice versa.
A surprising turnaround can be observed in the put / call ratio of the Chicago futures exchange. After the call options have always been historically high in the past few months, i.e. investors speculated on rising prices, the purchase of put hedges rose sharply in the past week.
US fund managers have reduced their investment ratio even further. After 69 percent in the previous week, only 52 percent of the funds are now invested. High cash holdings at the turn of the year are not typical for investment professionals. If there is no further reset, you will be forced to act.
With US private investors, the bears dominate with a minus of 14 percent, a rather rare figure. In the current year there was only a brief excess of pessimistic investors at the end of September and the end of November.
The “fear and greed indicator” calculated on the basis of technical market data shows fear with a value of 26 percent, which is on the threshold of an extreme value (from 25 percent). Other short-term technical indicators, on the other hand, indicate a neutral market condition.
There are two assumptions behind surveys such as the Dax Sentiment with more than 6,000 participants: If many investors are optimistic, they have already invested. Then there are only a few 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 prices.
Would you like to take part in the survey? Then you will be automatically informed about the start of the sentiment survey and sign up for the Dax Sentiment newsletter. The survey starts every Friday morning and ends on Sunday noon.
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