There are two scenarios for the Dax

Frankfurt Stock Exchange

Investors fear prices will fall again in the next three months.

(Photo: dpa)

Dusseldorf The Dax is facing crucial weeks: the leading German index has been moving sideways for a month. Since mid-April, it has only increased slightly more than two percent. It will now become clear whether the stock markets are heading towards highs again in the form of a V-recovery.

The weekly survey Dax-Sentiment by the Handelsblatt, for which 3,500 private investors are surveyed, shows a positive sentiment of the investors: the short-term stock sentiment is 1.4 in the slightly positive range. The five-week sentiment indicator, a hitherto unambiguous signal for the development of share prices, remains in the neutral range.

“It seems that many investors have now done their homework and are waiting for the opportunity to bring their favorite shares to the depot in the next sale,” said sentiment expert Stephan Heibel, who is evaluating the survey.

At the same time, investors are somewhat uncertain about the price increase in the previous week. After the threat from US President Donald Trump towards China first caused prices to drop to 10,500 points, China and the United States have since reconciled. Success in the vaccine development against the coronavirus was reported, so that the Dax flirts again with the mark of 11,000 points.

Heibel sees two explanations for the uncertainty among investors. Either investors did not trust the development and wondered why a second sell-off wave was coming. “Or investors are simply wrongly positioned, have not bought enough in the low and now think the price level is too high to get in,” says the owner of the analysis company Animusx.

Heibel believes the first justification is more likely with regard to the future expectations of investors: In the current survey, this is minus 1.1. So investors fear falling prices again in the next three months and wonder where the second sell-off wave will be.


At the same time, many investors are ready to buy stocks. The willingness to invest has increased from minus 0.1 to 1.0. “This shows that many investors are waiting for a small reset to buy,” says Heibel.

A look at the Euwax sentiment of private investors also confirms that investors expect prices to fall: it is still deep in the red and is minus ten. The negative value means that private investors have secured themselves against further price losses by means of corresponding financial products that benefit from falling prices.

By contrast, professional investors who hedge themselves via Eurex – one of the world‘s largest futures exchanges for financial derivatives – have reduced their hedging positions. They are neutral.

Based on these results, Heibel sees two extreme scenarios for the further development of the Dax: In one, the index rushes well below the 10,000 point mark, in the other there is a buying panic that drives the Dax further up.

Scenario 1: Fall below 10,000 points

The result of the Dax survey shows that on the one hand investors expect prices to fall, but at the same time they are interested in buying. For Heibel, this is a sign of a bargain-hunter mentality: “Actually, you’d like to be invested in certain stocks, but you don’t want to get in at the current price level. So you hope for a short sell-off and then grab it. “

Heibel locates the purchase interest at just over 10,000 points. Theoretically, a sellout should end there for the time being. Investors believe that the Dax will catch on this brand and then rise to new highs.

According to sentiment theory, however, it is unlikely that exactly the scenario that investors are preparing for will occur. “Rather, it is quite conceivable that the stock market may slide down and well below the 10,000 mark,” says Heibel. He believes this scenario is more likely.

Scenario 2: buying panic

In a second scenario, prices would go up. That would catch many investors on the wrong foot – the current prices are already too high for them, they expect prices to fall. They did not dare to go back into the recovery. Some have even taken profits.

“If the prices continue to rise, there could be a buying panic that drives the Dax even higher,” says Heibel. Because in order not to keep up with the prices, investors who have not yet invested would buy and continue to drive the prices.

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

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