Market sentiment: "Deceptive optimism"

20 November 2024. FRANKFURT (Goldberg & Goldberg). Even though the DAX's trading range since our last sentiment survey has been just under 2.6%, the bulls on our panel in particular have not really gotten their money's worth. The interim upswing of 1.2% - despite several attempts, it ended at around 19,300 points - was probably enough for very few to comfortably part with their investments. However, it is also true that price declines on the other side came to a halt twice during the reporting period just above 18,800 points.

Now it is likely to have been mainly short position buybacks and hedging that intercepted yesterday's second attack on the lower side of the DAX. Our Börse Frankfurt Sentiment Index of institutional investors with a medium-term trading horizon has risen by 11 points compared to the previous week to a new level of +25 and is therefore at its highest level for just over a year. 

Profit-taking prevails

This is primarily because the bear camp has shrunk by 12 percentage points. Almost all of the bearish investors have moved over to the neutral camp, an indication of profit-taking - on balance, hardly anyone has dared to move directly to the bullish side. As a result, it can be assumed that accumulated price gains were the main motive for the most recent purchases. On the other hand, there was hardly any movement among the optimists - their group has shrunk marginally compared to the previous week.

Private investors, on the other hand, moved in the opposite direction. The Börse Frankfurt Sentiment Index fell by 8 points to a new level of +16 in this panel. Interestingly, this decline is almost exclusively attributable to investors surveyed via social media. In this subgroup, optimism has fallen by 10 percentage points, with over two thirds of those willing to switch switching directly to the bears. Among other private investors, on the other hand, there has only been a slight decline in the polarization between bulls and bears, with the bulls remaining in the majority. On balance, therefore, the two sub-groups have come much closer together.

Thinned demand side

Today's survey has widened the sentiment gap between private and institutional investors. It is worth noting that the Börse Frankfurt Sentiment Index in the latter panel has only risen due to profit-taking by previously pessimistic investors. So anyone who thought at first glance that institutional investors were increasingly betting on a year-end rally may have been mistaken. Otherwise, the pessimists from the previous week would have dared to do more than just take profits on bearish investments.

Even though our Börse Frankfurt Sentiment Index presents a new annual high of +25 and this setting is even slightly higher in a three- and six-month comparison, the underlying optimism is relatively high from a multi-year perspective, but not exuberant.

Nevertheless, the most recent development represents an increased burden for the DAX, especially as the optimists who have so far held out are likely to become sellers at around 19,500 points (where we assume the average purchase price of the commitments to be). On the downside, the future demand situation has deteriorated due to the aforementioned buybacks by the pessimists. Not to mention the scenario in which long-term capital movements, primarily from abroad, make their way out of Europe, putting the DAX (and the domestic optimists) under additional pressure. 
 

By Joachim Goldberg

20 November, 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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