The Dax has grown very dynamically since the beginning of October.
(Photo: dpa)
Dusseldorf Brave investors can buy into the existing sell-off and hedge positions at last Friday’s low. The risk is therefore manageable; a recovery movement could turn out to be quite generous.
Sentiment expert Stephan Heibel takes this view after evaluating the Handelsblatt survey Dax Sentiment and other indicators. Because, in his experience, such a violent change in sentiment among investors is usually only a short-term burden.
Other more dangerous mutations were to be feared in the pandemic. But the world is much better prepared today than it was a year and a half ago at the beginning of the corona pandemic. “In just a few weeks, prices should rise again,” says Heibel.
But why did the German benchmark index slump by a total of 5.6 percent in the past week of trading? Half of the price loss happened in the run-up to the news about the new corona mutation from South Africa, on Friday it went significantly lower again.
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Until Thursday, the German benchmark index was an overdue consolidation. In those days, many investors had already bought shares in hopes that the year-end rally would continue. The investment rate rose.
But with the news of a new type of corona variant, the prices slipped significantly and investors had little to counter due to the high investment quota. “This explains the intensity of the sell-out,” says Heibel. In his view, it wasn’t a panic sell-out. The current prices were viewed as bargain prices, but due to the lack of liquid funds, support purchases were made only with small volumes.
There are two scenarios for Heibel in the coming trading days:
- 2. If the German stock market barometer does fall below Friday’s low, panic could actually spread among investors, which is likely to result in further lows. From the previous bottom at 15,244 points in the Dax, it could quickly go up to 14,800 points.
Panic can already be seen in the euro-dollar exchange rate: sentiment has fallen to an extremely low level, while at the same time future expectations are starting to rise slightly from a low level. This is shown by data from the analysis company AnimusX, of which Heibel is the managing director. “This is what a bottoming out looks like.” At the current level of 1.12 dollars, there is also great interest in buying.
Current survey data
The mood fell by 7.1 points to minus 3.3. It is the biggest slump in twelve months. There has only been such a violent slide in the Dax sentiment five times in the past five years. The new mutation, which is said to be more contagious and resistant than all previous corona variants, evokes memories of the spring of 2020 among investors.
Complacency has also slumped from plus 3.6 to minus 5.4 as sharply as it has since the corona crash. Apparently, investors were caught on the wrong foot, they are very insecure: The moderate consolidation was already considered to be over on Thursday of last week, when the drastic sell-off on Friday came completely unexpected.
The optimism for the future, which is already showing up again, is astonishing: The future expectation has risen from minus 1.0 in the previous week to plus 3.5.
And investors want to follow optimism with deeds: The willingness to invest has jumped from 0.1 in the previous week to 3.7. Obviously, the price level that has now been reached is perceived as a buying opportunity.
The Euwax sentiment of the Stuttgart Stock Exchange, in which private investors trade, has been showing a decline in the propensity to hedge for a week. The number of calls has increased compared to the puts, which increase when prices are falling. “This confirms my observation that investors already considered the consolidation to be over on Thursday,” says Heibel. “So the sale on Friday took place without a net and a false bottom.”
To explain: With a large number of put leverage products in the portfolios, investors are creating a kind of safety net that protects against major price losses. If the prices slide, the put products are sold – and the price decline is at least slowed down.
Such products work practically like short sales – only that the bank manages the processing in the background. Put simply, this means: If an investor buys a put product on the Dax, the bank has to sell the Dax in the background. And when the derivative is sold, the Dax has to be bought back.
What a look at the USA reveals
Despite the Thanksgiving holiday, there is still a high level of optimism in the USA, which is reflected in a very low put / call ratio. The stock exchanges were closed on Thursday and only open for a few hours on Friday.
US fund investors reflect this optimism with a continued high investment ratio of 103 percent. Apparently, the investment professionals bought shares on credit and are thus able to keep the quota above the 100 percent mark.
However, the bull / bear ratio among US private investors has slipped into the red. With a share of 35.7 percent, the bears now have just under the majority again. 33.8 percent remain optimistic, the rest are waiting.
Dax on recovery course after “Black Friday”
The “fear and greed indicator” of the US markets, calculated on the basis of technical market data, has slipped to 64 percent and is now again showing comparatively moderate greed. In the previous week, this value was 78 percent and signaled extreme greed.
Other technical indicators suggest a short-term countermovement. The so-called “Short Range Oscillator” of the S&P 500 collapsed to minus 5.0 percent on Friday. From values of minus four percent, one speaks of an oversold market condition. The US stock market index has fallen too low too quickly.
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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