Markets

Market sentiment: “Remarkable price jump”

The professionals react to the DAX hops with short positions or go on vacation, while private stocks buy shares.

August 12, 2020. FRANKFURT (Frankfurt Stock Exchange). If you look back on the period since our last sentiment survey, you can see that trading on the stock market has been fairly narrow over long stretches and within the scope of a consolidation with a DAX range of a little more than 2 percent. Until yesterday, Tuesday. Because the stock market barometer is likely to have surprised one or the other player with a temporary increase of 2.8 percent in a single day. Because the reasons for this clearly visible exclamation mark are not really convincing.

Even if some commentators attributed the strong rise in the DAX to the surprisingly positive expectation component of the local ZEW index, which was published on the same day, it must be noted that a large part of the price jump had already taken place before these figures were published. Or was it the announcement by President Vladimir Putin that Russia was the first country in the world to have approved an effective Covid-19 vaccine that led to this violent reaction? Perhaps it was also the loudly voiced thoughts of US President Donald Trump that he could – after the controversial decrees of the weekend – possibly also lower taxes on US investment income that have generated such strong demand for German standard values.

Short of breath optimists

In view of the poor justification for the said price jump, one could assume that a so-called squeeze, a hasty closing out of short positions, had taken place. However, the institutional investors we surveyed weekly are hardly likely to be the originators. On the contrary: the rise in the DAX, which alone had been 1.9 percent in a weekly comparison, rather caused the well-known pessimism to flare up again. Because our Börse Frankfurt Sentiment-Index fell by 15 points to a new level of -29. The bull camp has shrunk by a third, of which, however, two thirds of those surveyed were content with profit-taking and did not become pessimists again. This means that – perhaps also appropriate to the time of year – the group of neutral actors has grown to its highest level since February 5 and is now as large as two weeks before the start of the Corona crash.

The mood gap between the panels is widening

On the other hand, there has been a move in the other direction among private investors. The sentiment, measured by our Frankfurt Stock Exchange Sentiment Index, has improved by 8 points compared to the previous week to a level of only -8. In fact, on this panel, a group of pessimists pulled the emergency brake and closed their bearish exposures. However, this is only about a relatively small proportion of 5 percent of all private investors surveyed.

The question remains who is behind yesterday’s rise in the DAX. At least at first glance, it does not seem plausible that the DAX and shares in the euro zone could have benefited from renewed international capital inflows. Especially since the euro has been in a corrective downward mode against the dollar for a few days. But it is certainly noteworthy that the levies by domestic institutional investors have so far not made themselves more noticeable in the form of price losses.

In any case, the pessimism that flared up again, but not exaggerated in relative terms, means an improvement in the DAX environment. In the event of a setback, in contrast to the previous week, initial demand from the youngest bearish investors could be expected between 12,400 and 12,500 meters. The risk of an additional short squeeze, triggered by the same actors, but not earlier than 13,300 DAX counters, has increased significantly.

August 12, 2020, © Goldberg & Goldberg for boerse-frankfurt.de

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