A market phase characterized by great uncertainty.
(Photo: dpa)
Dusseldorf There was a new record on the German stock market in the current stock market year: the Dax was able to increase for three weeks in a row. The companies’ quarterly figures have shown that the situation is serious, but not hopeless. That was enough to drive up the prices of many stocks. Compared to the correction low of four weeks ago, the Dax has already gained ten percent.
Accordingly, the extremely negative mood of the past few months has finally changed. After three weeks of price gains, investors’ mood has increased significantly. Professionals speculate on further price increases, while private individuals remain skeptical.
But how could it go on? According to sentiment expert Stephan Heibel, who evaluates the weekly Handelsblatt survey on Dax sentiment, recoveries are never linear. The only exception: the Corona crash 2020, which is an exceptional situation in many respects.
A look at the development at the end of December 2018 confirms this thesis. At that time, the five-week sentiment slipped as an important contraindicator to a similar level as in mid-July this year after a downward trend lasting several months (see chart). The Dax then rose by ten percent for five weeks in 2019, before falling four percent. As a result, the Frankfurt Stock Exchange rose by a further ten percent by the beginning of April.
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That’s why Heibel advises investors to stop chasing the prices and wait for setbacks if they still want to get in. After a ten percent price gain, a breather is to be expected. The rally may continue for a few more days, but without real positive developments, the upside is likely to run out of steam soon, albeit temporarily. But for Heibel it is also clear: After the many months of negative sentiment, the rally does not have to end there.
A clear indicator of a temporary end to the upswing is also the high level of investment by private investors. Accordingly, their cash ratio is very low. This is shown by the current data from the more extensive sentiment survey by the analysis company AnimusX. Domestic private investors have too little liquid funds that could ensure a continuation of the rally.
Despite the price gains, there is still a great deal of skepticism among investors. The war in Ukraine seems hopeless, the energy crisis is rolling towards us in winter, and declining commodity prices are now being interpreted as a harbinger of a recession. No matter what message investors have to process, there is always a negative possibility of interpretation.
But this scenario is quite common. In the first few weeks of the rise, there were no solutions to the most pressing problems. However, the mood had previously slid so far in parallel to the ever-new catastrophes that further bad news at some point no longer triggered any additional selling pressure, which caused prices to rise. “It can’t get any worse,” says Heibel, describing this development.
Current survey data
Investor sentiment has risen to a value of plus 1.1. With a plus of 0.1 in the previous week, the pessimism was over for the first time since the beginning of the year. Now there is even a good mood among investors.
However, they remain uncertain, the corresponding value is minus 0.8. Apparently, investors do not trust this development. Many are wondering: How can stock prices rise against the background of the war in Ukraine, the energy crisis and high inflation, the looming recession and a possible escalation of the conflict over Taiwan?
Investors continue to be positive about future stock market developments. However, future expectations have fallen from plus 0.7 in the previous week to plus 0.3 now. Investors still want to buy shares in the next two weeks, but the willingness to invest has also declined. After a plus of 2.9 in the previous week, this value is currently 2.0.
The Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade, has slipped to minus twelve, the lowest level in twelve months. Negative values indicate an overhang of put leverage products in the depots, which increase in value when prices fall. Accordingly, private investors hedge the price gains achieved in the past few weeks against possible price losses.
Institutional investors who hedge via the Frankfurt futures exchange Eurex behave differently: The put/call ratio has slipped to 0.8 percent and shows that an extremely large number of calls are being bought, with speculation that prices will continue to rise. The put/call ratio on the Chicago futures exchange CBOE is also at a low level. In the USA, too, speculation is evident that the rally will continue.
US fund managers have raised their investment ratio by eight percentage points to 55 percent, but are still well below the average investment ratio of 80 percent. US private investors have a bull/bear ratio of minus eight percent. Bears are also dominating sentiment among private individuals in the US. However, the bear rate continues to decline.
The “fear and greed indicator” of the US markets, calculated using technical market data, is trading in neutral territory at 47 percent.
Gold and crude oil prices are likely to rise again
Gold and oil investors have one thing in common: they are in an extremely bad mood right now. Because the commodity rally ended a few weeks ago and caught many investors on the wrong foot because they were apparently “long” invested. The mood on the gold market in particular is extremely negative, but bears are also dominating the oil market. From the point of view of sentiment theory, this is a good starting point for rising prices in the coming weeks – both for gold and for crude oil.
There are two assumptions behind surveys such as the Dax sentiment with more than 7,000 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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