Market sentiment: "Short Break"

2 Oktober 2024. FRANKFURT (Goldberg & Goldberg). In the past sentiment week, the positive impetus for the DAX again came primarily from abroad. First and foremost, the stimulus measures taken by China's political leadership and central bank, which led to an extremely euphoric and dramatic rise on the stock markets, especially in China. The DAX was also able to produce two new all-time highs during the reporting period: At times, the price gain since our last sentiment survey amounted to 2.6%.

The setback in the DAX at the start of the new month is unlikely to be due to the holiday week that began on Tuesday and the resulting lack of further positive stock market momentum from China. Even if the armed conflicts in the Middle East have so far had hardly any noticeable impact on the stock markets, there are some indications that the latest escalation has also put pressure on the DAX. Or was its weakness at the beginning of October more of a reminiscence of the significant downward corrections seen at the beginning of August and September? After all, 1.6% of the price gain since last Wednesday still remains.

Profit-taking with good arguments behind it

The sentiment among the institutional investors we surveyed with a medium-term trading horizon has now deteriorated significantly. Our Börse Frankfurt Sentiment Index has fallen by 16 points to a new level of -17 - the lowest level since May 29. The bottom line is that former bulls have realized their gains in view of the third weekly rise in the DAX in a row, possibly in combination with the significant increase in geopolitical risks: The group of optimists shrank by 9 percentage points in the process, with more than three quarters of switchers going straight to the bear side and thus turning their positions around 180°.

There was also a deterioration in sentiment among private investors, albeit not quite as marked. The Börse Frankfurt Sentiment Index in this panel fell by 11 points to a new level of +12. This has caused the bear camp to grow by 7 percentage points, with this increase coming almost equally from former bulls and previously neutral investors. Interestingly, the willingness to take profits and turn 180° to the short side was similarly high among the private investors surveyed via social media as among institutional investors, while the majority of the new bears among the other private investors were previously neutral stock market players. At the same time, the sentiment gap between these two subgroups has narrowed.

They'll be back soon

In contrast, the sentiment gap between private and institutional investors has widened once again with today's survey. However, the pessimism among the latter is not as pronounced in a three- and six-month comparison as the absolute data would suggest. There is much to suggest that the former optimists among institutional investors would like to repeat the success of their fundamentally bullish strategy and that the willingness to build up new long positions at a lower level is therefore likely to be quite high. We expect to see this demand for the first time in the 18,850/900-point range, which will serve as support for the DAX, at least temporarily. This is also supported by the fact that the setback in the DAX so far (from the peak of just over one percent) is likely to be mainly attributable to domestic investors and has so far remained manageable. In terms of sentiment, the DAX therefore continues to move in favorable waters. 

By Joachim Goldberg

2 Oktober, 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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