Market sentiment: "Euphoria without energy"

23 October 2024. FRANKFURT (Goldberg & Goldberg). Judging by some of the stock market commentary since our last sentiment survey, the DAX should have run away upwards. Last weekend, for example, there was talk of exuberant euphoria among many stock market players, and for some analysts, reaching the 20,000 mark seemed only a matter of time. In fact, the stock market barometer has been as quiet as it was during the sentiment week at Easter: the trading range since last Wednesday was just 1.6%, with a small drop of 0.3% on the week. At least as far as the performance of the DAX is concerned, one could therefore speak of a certain restraint on the part of market participants. It is quite possible that the US election in just under two weeks' time is already casting its shadow. But this is also part of the truth: the DAX reached a new all-time high during the reporting period.

And it may have been precisely this new all-time high that apparently caused some of the institutional investors we surveyed with a medium-term trading horizon to change their minds. At the very least, a large group of pessimists has suddenly lost interest in continuing to bet on falling prices, only to return later as buyers at a lower level. Our Börse Frankfurt Sentiment Index gives the impression that the fear of a further rise in the DAX must have been greater than the hope of benefiting temporarily from falling prices. 

Bullish by necessity

At least our Börse Frankfurt Sentiment Index has risen by 15 points compared to the previous week to a new level of +3. At the same time, the bear camp has been reduced by 11 percentage points. However, the fact that only slightly more than a third of those willing to switch directly to the bull side is also evidence of a certain aversion to possibly betting on a (supposedly) incipient rally at peak prices. As a result, more than two thirds of the former bears have moved to the sidelines.

Private investors have remained surprisingly quiet. This is because the Börse Frankfurt Sentiment Index in this panel has remained at the same level for the second time in a row at +27. The polarization between bulls and bears has also only narrowed by one percentage point in each case.  At the same time, the gap between the significantly more bullish investors surveyed via social media and the other private investors has changed only minimally.

Strategy shift towards risk aversion

With today's survey, the sentiment gap between institutional and private investors has narrowed significantly again. Although the latter have been more or less consistently optimistic for many weeks, the market participants surveyed via social media are at best slightly euphoric. In relative terms over three and six months, this optimism is even significantly lower than the absolute figures for the past three weeks.

On the other hand, the institutional investors, most of whom have been bearish recently, have obviously - and in many cases probably not entirely voluntarily - abandoned their “buy low, sell high and sell back” strategy, which has been successful for weeks. At the same time, this has thinned out any demand in the event of a DAX setback - which we still expect to occur just above 19,000 points - as some of the bears from the previous week will no longer be able to buy back in this case due to their premature exit. This means that the DAX's sentiment situation has deteriorated slightly compared to the previous week. It is quite possible that the recently disappointed bears on the sidelines will once again be prepared to come out as new bulls at the lower prices mentioned above. 

By Joachim Goldberg

23 October, 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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