Investor sentiment has deteriorated for the fourth straight week.
(Photo: dpa)
Dusseldorf The past stock market week brought new highs to the Dax. The Frankfurt stock exchange barometer rose to 16,332 points on Friday and reached a closing level of 16,281 points – all records.
The leading German index is likely to remain at this level, and a rapid correction is unlikely without the corresponding news situation, as the result of the Handelsblatt survey Dax sentiment shows. This is carried out weekly among more than 8,000 private investors.
With the record high, the Dax ended a month-long sideways movement: it fluctuated between around 15,650 and 16,000 points for more than five weeks. Such a phase is often followed by a new movement impulse, which is often all the stronger the longer the sideways movement lasts.
This could be seen in the past week, when the Dax rose by more than 400 points or 2.6 percent at its peak. This price increase was made possible by two factors, explains stock market expert Stephan Heibel. The managing director of the analysis company AnimusX evaluates the weekly Dax survey of the Handelsblatt and supplements it with additional indicators.
Firstly: “The hope of an early agreement in the US debt dispute has fueled the rally.” The dispute between the US Democrats and Republicans over raising the debt ceiling has weighed on the markets recently. Negotiations have now intensified and a quick agreement is already partially priced in.
Many investors are underinvested
The second reason for the rally is the bad mood among investors, explains Heibel. Many investors were skeptical about the price development – after all, it has risen by almost 17 percent since the beginning of the year – and would have positioned themselves for falling prices. Accordingly, many investors are underinvested and have to buy more when prices rise in order not to completely lag behind the development.
The fact that great skepticism is a counter-indicator is one of the basic assumptions of sentiment theory, in which conclusions about future price developments are drawn from the mood of investors. Heibel drew attention to this several times in his evaluation of the Handelsblatt survey.
Hence the stock market wisdom that a rally moves up a wall of worry. As prices rise, more and more investors are abandoning their skepticism, creating a steady flow of new buyers.
“The great pessimism of the previous weeks has now erupted,” says Heibel. “However, we are still a long way from the euphoria and ebullient optimism that would call for caution.”
Because that is another basic assumption of the sentiment theory: A mood that is too good is a harbinger of falling prices, because then almost all investors are already invested and there are no new buyers.
Better mood, but no euphoria
After the past week, investor sentiment has risen from zero to plus 3.9 points. From a value of 4.0, the sentiment indicates euphoria. On the one hand, that would be a warning signal, on the other hand, phases of euphoria can last for a long time. In addition, one needs to put investor sentiment in context, and this shows that the rally may still have room to grow.
Although self-satisfaction has risen from minus 1.1 to plus 1.7 points, it is still in the moderate range. “Obviously there are many investors who did not sufficiently anticipate this rally and are now invested too little to benefit sufficiently from it,” analyzes Heibel. So there are still potential buyers.
“Many investors are looking at the rally in disbelief,” notes Heibel. Because the list of problems is long, with the Ukraine war, inflation that is still too high, the resulting sharp rise in interest rates and the uncertain economic outlook.
This is also reflected in the pessimistic expectations. After minus 3.3 points in the previous week, this improved only slightly to minus 2.9. In three months, just under every fourth respondent expects prices to rise.
The willingness to invest also remains low with a value of minus 0.5 points. In the previous week it was minus 1.0. “Investors would rather sell than get in at this level,” summarizes Heibel.
Overall, these results do not indicate dangerous euphoria. Rather, those surveyed fear a significant fall in prices – and that is exactly what speaks against a collapse in prices and in favor of moderately rising prices or consolidation at a high level, explains Heibel: “The great skepticism, which is reflected in the continued great pessimism and the weak willingness to invest , should prevent a stronger setback.”
Stock market wisdom could be misleading
Because the unexpected always causes strong price reactions on the stock exchange. However, both private investors and professionals are currently preparing for falling prices, as data from the Stuttgart Stock Exchange and the European futures exchange Eurex show.
The stock market wisdom “Sell in May and go away” could therefore turn out to be wrong this year, says Heibel: “Because the sentiment theory, with which the expectations of investors are interpreted as a contraindicator, continues to favor further rising prices.”
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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