Dusseldorf Despite the significant price gains at the end of last week, many investors are expecting a sharp setback in the Dax. This is shown, among other things, by the evaluation of the Handelsblatt survey Dax sentiment.
This setback is likely to be larger than last week, when the lowest price was 15,629 points. For the sentiment expert Stephan Heibel, who evaluates the weekly survey, this is due to the currently low cash ratio, which is associated with a high proportion of short speculation. Short selling is a trading model in which investors bet on falling prices. “That’s why another setback in the Dax will not be absorbed so quickly,” explains Heibel.
Because a low cash ratio means that little money is available to stop a price drop. And the short rate has increased despite the pullback over the past week. The fact that hardly any of these short speculators closed their position at 15,629 points shows that they are waiting for significantly lower prices.
The Dax found a bottom last week because there were obviously enough investors who still wanted to jump on the ongoing rally. They supported the market with their purchases.
For Heibel, “it is questionable whether the agreement in the US debt dispute will be enough to drive prices up further.” If the rally peters out, a sharp drop in prices is still unlikely. Because the large hedging positions continue to provide good support.
When investors go short, they buy back the value. Short sellers make money on falling prices by borrowing stocks that they see as price risks for a fee. Then they sell the stock immediately to buy it back cheaper before the redemption date. The difference between the sell and buy price is your profit.
According to data from the analysis company AnimusX, the short rate is as high as it was last summer around six months after Russia invaded Ukraine. At that time, most of the Dax slump had already taken place.
Therefore, the sentiment expert sticks to his assessment: “The continued high level of protection makes an end to the rally and a trend reversal unlikely at this point in time.”
However, another scenario is at least conceivable. Despite the low cash ratio and the high degree of uncertainty among investors, a so-called “short squeeze” could occur, a tremendous jump in prices.
If equity markets continue to rise in the coming days, it could accelerate the rally as misplaced investors will have to close their short positions. “New all-time highs in the Dax would then be possible,” says Heibel.
Current survey data
Shortly before the vote in the US Congress on the compromise in the debt dispute, the Dax weekly minus was two percent on Wednesday evening. But the compromise was approved, and the stock markets were able to fully compensate for their interim minus by the end of the week.
The roller coaster ride has left its mark on investor sentiment. Investor sentiment rose to 1.0 points at the end of last week, after a value of minus 1.2 points was measured a week ago.
The stock markets completed the expected consolidation, the actual correction targets in the Dax of 15,600 to 15,700 points were reached, and then the rally continued.
The whole thing happened fairly quickly, leaving a feeling of uncertainty among the survey participants. The corresponding value goes back to minus 0.6 after minus 1.3 in the previous week.
Investors lacked confidence in better times. This is shown by the fact that future expectations have slipped to minus 1.9 points. In the previous week, the value was minus 0.5. The Dax has risen by 33 percent since last October. The interim minus of two percent in the past week is more of a breather than a correction. But many investors are wondering if the uptrend is over. And so the willingness to invest remains at a low level with a value of plus 0.6 points.
At minus two, the Euwax sentiment of private investors is still at the level of the previous weeks.
The hedges entered into in April will continue to be held. Investors pulled them in at a Dax level that is lower than today. From this it can be seen that investors expect the Dax to lose more than the two percent from the previous week. Only then would they dissolve their hedges.
Institutional investors who hedge themselves via the Frankfurt futures exchange Eurex also remain cautious. The put-call ratio of minus 2.9 shows a high interest in hedging positions against falling prices. With put options, investors protect themselves against price losses, with call options they bet on rising prices. In the US, on the other hand, there is little inclination to hedge against falling prices. The put-call ratio on the Chicago futures exchange is at neutral levels.
US fund managers have reduced their investment quota from 65 to 54 percent and are thus showing a moderately cautious positioning.
This is also shown by a US survey of private investors. One of the most important indicators, the bull-bear differential, shows whether retail investor sentiment is pessimistic or optimistic. The proportion of pessimists is 37 percent, that of optimists is 29 percent. The pessimists predominate with a value of minus eight. This means that the pessimism that has dominated for weeks has receded only slightly. The US markets’ “fear and greed indicator,” another tool used to measure retail investor sentiment, is trading at 61 percent. So greed easily prevails.
Sentiment signals rising oil prices
The sentiment on the oil market was striking at the weekend. Investor sentiment regarding the development of oil prices is pessimistic. This showed that investors had already priced bad news from the weekend’s Opec meeting into oil prices.
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So Saudi Arabia’s production cut should have a positive effect on the oil price. Already today, Monday, the price for a barrel of North Sea Brent will rise by two percent.
There are two assumptions behind surveys such as the Dax sentiment with more than 8,000 participants: if many investors are optimistic, they have already invested. Then only a few are left who can 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 informed automatically 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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