Market sentiment: "Christmas presents already in Advent"

4 December 2024. FRANKFURT (Goldberg & Goldberg). A sentiment week of DAX superlatives lies behind us. Three new all-time highs and the 20,000 mark being exceeded for the first time alone. And we are talking about a price increase of 4.9% since last Wednesday (point analysis), without any major setbacks. For all those, including many private investors, who have held on to their long positions over the past few months, this is probably a celebration.

In contrast, institutional investors had less reason to rejoice. The sudden rise in the stock market barometer of more than 1000 points at times (calculated from the weekly low) since our last sentiment survey must have been particularly painful for the bears who only joined the market in the previous week. And some may have asked themselves whether such a rise in the DAX was justified in view of the not exactly encouraging macroeconomic situation in Germany. 

Skepticism here …

The institutional investors we surveyed with a medium-term trading horizon were certainly not responsible for the strong rise in the DAX. Our Börse Frankfurt Sentiment Index fell by 14 points compared to the previous week to a new level of +/-0. After new bearish investors had already appeared on the scene in the previous week, their group has now increased by a further 10 percentage points. On the one hand, these are former bulls who have presumably turned their position 180° (40% of those willing to switch) to “short” near the previous record levels of October. On the other hand, previously neutral investors who were neither comfortable with the significant price increase nor prepared to bet on a continuation of the December rally.

Private investors still seem to be betting on this rally, both those we surveyed via social media and other investors. The Börse Frankfurt Sentiment Index in this panel fell by just one point to a new level of +18, with the polarization between bulls and bears (slightly stronger among the latter) having increased somewhat compared to the previous week. The urge to take profits has therefore remained manageable.

... there belief in an upward trend

While private investors are apparently betting on a continuation of the upward trend, their institutional counterparts remain skeptical. As a result, the sentiment gap between the two panels has widened. The bottom line is that hardly any institutional investors on the bear side were prepared to pull the emergency brake. Possibly also because there have only been slightly better entry opportunities for would-be bulls since our last survey.

Even though our Börse Frankfurt Sentiment Index is now at the neutral zero line, the latest development shows that the group of bears has increased by 18 percentage points over the past two weeks. Slightly more than half of them have become active in a rising market without any significant setback in the stock market barometer since then - an indication of long-term capital inflows. At the same time, many of these new short positions are probably already under water. And preferably these exposures will be waiting to be covered back at a lower level (presumably in the 19,690/750 range). On the other hand, if the DAX continues to rise to new record highs, it should be difficult for the bears to justify their position to third parties. However, the mere fact that there is an equally high proportion of bulls on the other side, who may realize profits if the DAX continues to rise, should stand in the way of a veritable short squeeze in the bear camp. But the signs for the stock market barometer are certainly positive.
 

By Joachim Goldberg

4 December, 2024, © Goldberg & Goldberg für boerse-frankfurt.de

The Börse Frankfurt Sentiment Index ranges between -100 (total pessimism) and +100 (total optimism), with the transition from positive to negative values marking the neutral line. 

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