Market sentiment: “Don’t be afraid of a lockdown”

The DAX is falling like a stone, German investors are more likely to get in. Joachim Goldberg knows why, who sells instead and what that means for the market.

October 28, 2020. FRANKFURT (Frankfurt Stock Exchange). Now the stock markets, especially the local DAX, have reacted to the dramatic development of the Covid 19 infection figures. The stock market barometer has temporarily lost more than 1,000 points since our last survey, most of it this week. It is not the case that a worrying trend regarding the Covid-19 numbers within the EU did not emerge in the previous week.

But there was at least a positive counterbalance to the negative reports on the stock markets, which initially prevented prices from sliding sharply. What is meant is the actors’ hope, which has now expired, for a US stimulus program of around 2 trillion dollars before the election date on November 3rd. It was not until the collapse of SAP shares on Monday and the suddenly increasingly frequent discussions about an imminent lockdown in Germany, whatever that might look like, that led to a significant sell-off, especially for shares in the euro zone: Since then The peak of the recovery from the previous Monday, the DAX alone lost over 10 percent of its value at times.

Boldly bought into weakness

Judging by the loss of the DAX, one might have thought that domestic investors had largely contributed to this price slump. That this is not the case, however, shows the latest result of the sentiment survey among institutional investors, in which the Frankfurt Stock Exchange Sentiment Index even increased by 6 points to a level of +4. Half of this is profit-taking from previous short positions and new positions against the trend. The other half of the new cops are provided by actors who were previously neutral. Noteworthy in this context: the group of optimists has increased by around a third in the past two weeks alone.

We are registering a similar development among private investors, whose Börse Frankfurt Sentiment Index also rose by 10 points to a level of -2. In this panel, similar to the institutional counterparts, profits were realized from previous short positions and some of the exposures in question were turned directly 180 degrees into long positions.

Learned carelessness

With today’s survey, the mood gap between institutional and private investors has narrowed significantly. In both panels it can be stated that one does not necessarily count on the Covid-19 crisis being able to be brought under control soon. Rather, the courage of the new optimists is likely to be fueled by the experience that DAX corrections in the previous months were repeatedly absorbed and severe price drops were nipped in the bud at an early stage. One could also speak of a learned carelessness.

Now there is some evidence that it will not turn out this time. Because if the strong DAX slump is most likely not to the account of domestic investors, who must have been overwhelmed by market developments with their presumably not large-scale purchases, one must assume that foreign capital may have left the euro zone on a larger scale. The weak euro exchange rate could be an indication of this. Even if today’s survey did not build up any huge optimism, in a relative analysis over a six-month period it turns out to be significantly higher at +16 points and at the same time reflects an increased positive basic conviction.

The burden on the DAX, which was already determined in the previous week, has thus increased significantly. Because today’s optimists will not stay loyal to the DAX for too long if it does not immediately deliver price gains (around 12,000 points would probably be enough). On the other hand, if the downward movement of the DAX continues, the emergency brake would have to be pulled in some places.

October 28, 2020, © Goldberg & Goldberg for

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