Investors have prepared for a setback on the stock market

Bull in front of the Frankfurt stock exchange

The prospects for further DAX price gains are very good.

(Photo: AP)

Dusseldorf After a clear plus of five percent in the past trading week, the stock markets are heading down again at the beginning of the week. Is the Dax falling again towards 8255 points, the previous low of the stock market crash since the end of February?

After evaluating the Handelsblatt survey Dax-Sentiment and other indicators, Stephan Heibel gives the all-clear. “After last week’s developments, a return to the March lows has become unlikely,” he explains.

Another setback is already underway. But afterwards, in his opinion, the recovery movement should continue again. “So anyone who has taken partial profits in the past few weeks can now start buying shares again,” says the owner of the analysis company Animusx.

For him there are several reasons why the Dax should not fall so low again. On the one hand, private investors are prepared for a setback, and they have sufficient protection. You would not have to accept as high losses as in March if prices continued to fall.

Secondly, institutional investors are not as heavily invested as they used to be. On the contrary, the cash reserves are still relatively high. “This time investors should buy shares much earlier to position themselves for the time after Corona”, is the conclusion of the sentiment expert. The development of the five-week sentiment average (see chart) also allows the recovery to continue with a listing in the negative range.

graphic

According to Heibel, the stock market is currently approaching a scenario called the “perfect wave”: central banks around the world are pumping liquidity into the system and many governments are launching stimulus packages to mitigate the economic impact of Covid-19.

Many investors are now expecting the economic consequences to remain manageable, but at the same time financial markets and the economy will be flooded with money. The consequence? Rising prices and, if central banks do not take countermeasures in good time, inflation.


In which cycle phase do you think the markets are currently in?

Information in percent


The current survey values ​​of the Dax sentiment show how much the rising prices have put investors in a good mood. Short-term sentiment jumped from minus 2.4 to plus 1.8 in the shortened trading week, a massive change in sentiment. “Euphoria is only reached at a value of four, but against the background of the depressed mood since the end of February, this change in mood is remarkable,” explains the sentiment expert.

The exciting question is: How will the mood develop in the coming week? Another, clearer improvement would soon result in euphoria, a contraindicator that signals falling prices. The investors would then be in a “party mood”. “But parties are currently prohibited,” jokes Heibel. “Let’s see if the investors adhere to it”.


Have your expectations for the Dax been met in the past week?

Information in percent


Most investors were caught on the wrong foot by the Dax plus of five percent in the past trading week. Because the complacency / uncertainty indicator, with a minus of 3.9, shows great uncertainty among the survey participants about the recent market development. Hardly anyone wants to believe that the crisis may have passed its zenith.

And so the expectations for the future have dropped further: With a value of minus 2.6 the bears dominate over the bulls for the third week in a row. Most of the price gains in the stock markets in the past week are temporary. The majority believe that the Dax will be lower again in three months.


Which cycle phase do you expect in three months?

Information in percent


Therefore, there is no willingness to invest: it is too late to buy after the current price jump, but there are not enough positions in the portfolio of the survey participants to sell. The willingness to invest is correspondingly neutral with a value of minus 0.1.

A look at other indicators shows that private investors have massively hedged themselves against price losses with put leverage products that gain value when prices fall. Because the Euwax sentiment of the Stuttgart Stock Exchange shows a value of minus twelve. In the past twelve months, this indicator was only at a similarly low level in mid-September 2019. For values ​​in the positive range, call leverage products outweigh the Dax and vice versa.


Will you trade in the next two weeks?

Information in percent


However, professionals who secure themselves through the Frankfurt derivatives exchange Eurex have not clearly positioned themselves in the past week. Two weeks ago they had speculated on rising prices, now the profits have been made.

In the US, the put-call ratio is in the neutral range after strong hedges have been taken in the equity sector in particular.

The bull-bear ratio of US private investors shows a strong overhang of the bears at minus 25 percent. So pessimism still dominates the market in the USA.

The “fear and greed indicator” of the US stock markets, calculated on the basis of technical market data, shows a neutral state with a value of 46 percent. Other short-term technical indicators show a slightly overbought market condition, the correction could go a little further.

More: Three strategies for investors to invest in stocks during the crisis

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