The majority of investors expect prices to continue to fall – that should slow down the downward movement

Dusseldorf Investors saw the interim strong recovery of the leading German index Dax in the past trading week as an opportunity and took advantage of it. Many of them have dumped their unwelcome stock positions from their portfolios. Sentiment expert Stephan Heibel draws this conclusion after evaluating the Handelsblatt survey Dax-Sentiment and other indicators.

This has increased the cash ratio of private investors. So in the event of another downswing in the stock market, they won’t be as heavily exposed. “It will be difficult for downward momentum to establish itself; downward movements should lose momentum early on in the coming days,” explains Heibel.

As expected at the beginning of the past trading week, the extreme sentiment values ​​last Monday led to a significant recovery on the financial markets. At the beginning of the week, the Dax shot up by six percent, although the announcement of a cut in daily oil production by the Opec plus cartel is likely to weigh on the economy and further fuel inflation.

As the week progressed, most of the recovery movement was relinquished. Surprisingly strong US jobs data, which should also keep inflationary pressures high, finally prompted a sell-off on Friday afternoon. In a weekly comparison, only a meager plus of 1.7 percent remained in the Dax.

But the recovery has done little to mitigate the extremely depressed mood and extreme pessimism among investors. Although the sentiment data no longer reach the extreme values ​​of the previous week, there is great skepticism about the recovery. “Investors mostly expect the bear market to continue,” concludes Heibel.

This skepticism is particularly evident in the five-week average of the sentiment indicator, which has barely recovered from the record low of the previous week.

But what is missing for a sustainable trend reversal is the final sell-off. A final sell-off denotes a situation in which many investors dump their shares on the market regardless of the prices, fearing even bigger losses. The prices drop significantly with high trading volumes.

Since there are no other sellers who can drop prices for a longer period of time, this is often the end of a correction. As long as this final sell-off is missing, the markets remain in an intact downtrend with intermittent price recoveries. There was exactly such a short-term price recovery in the past trading week.

Current survey data

With a value of minus 5.0 after minus 6.9 in the previous week, investor sentiment remains extremely depressed. Uncertainty also remains at a high level of minus 3.7.

The future expectation remains pessimistic with a value of minus 0.6. So-called bears, who expect falling prices, continue to dominate over the bulls, who are betting on rising prices.

At least there is still a moderate willingness to invest with a value of plus 1.7. But due to the negative mood, these are only speculative investments that should be liquidated again quickly after moderate price gains.

Professionals dissolve hedges

With a value of minus 2.5, the Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade, shows only a moderate hedging tendency against falling prices. Negative values ​​mean that private investors are more likely to bet on falling Dax listings and vice versa. This value has remained constant in a weekly comparison. This shows that many investors have hedged against falling prices when Dax prices have risen in the meantime, so they are in the black with their short products.

The put-call ratio of institutional investors who hedge via the Frankfurt futures exchange Eurex is comparatively low at 1.1. With put options, investors benefit from falling prices or hedge against price risks, with call options they benefit from rising prices.

The pros are unwinding their hedges at the current level. In the US, investors remain cautious. The CBOE put-call ratio continues to show strong interest in put protection.

US fund investors have increased their investment ratio a little again. After only 13 percent in the previous week, 38 percent of the capital is already positioned long this week, i.e. for rising prices.

Extreme fear in the US market

The bull-bear ratio of US private investors is minus 31 percent and shows a clear overhang of the bears. However, the extreme values ​​of the two previous weeks, each with more than minus 40 percent, were no longer reached.

The “fear and greed indicator” of the US markets, calculated using technical market data, is trading at 25 percent, signaling extreme fear in the market. Short-term technical indicators, on the other hand, are already back in neutral territory after a few days of the recovery rally.

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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