Market sentiment: "Thin air for Pessimists"

28 August 2024. FRANKFURT (Goldberg & Goldberg). 
The DAX has now gained for the third sentiment week in a row, posting a gain of 1.9%. It is not only remarkable that the stock market barometer has been able to make constant gains since the low on August 5, meaning that the price slump at the beginning of the month can only be seen as a bearish slip, a brief episode. Since then, the recovery has been characterized by the fact that investors willing to buy have had to act in a rising market without any significant setbacks in between for a somewhat less costly entry.

Unfortunately, one thing is also clear: The institutional investors we surveyed with a medium-term trading horizon have not been the driving force behind the continuation of the DAX rally over the past week. This is because our Börse Frankfurt Sentiment Index deteriorated for the third time in a row and recently fell by a further 6 points to a new level of -12. This time it was not because a larger group of investors went short. There were hardly any changes there. 

Reference point all-time high

Instead, it was former optimists who closed out their investments with a profit. At 7 percentage points, the decline in the bull camp is largely in favor of neutral investors. The most recent losses are unlikely to have been caused by NVIDIA's quarterly figures from the USA, which are eagerly awaited this evening. Even if these figures are now regarded in many quarters as an important economic date or even an event risk due to their significance. Rather, it can be assumed that the proximity to the DAX's previous all-time high as a reference point motivated profit-taking.

Sentiment among private investors has also deteriorated. The Börse Frankfurt Sentiment Index in this panel fell by 8 points to a new level of +9, with the bear camp increasing by 6 percentage points on balance. One third of this is attributable to previously bullish investors, while around two thirds come from previously neutral participants. The gap between those surveyed via social media and other investors has also narrowed slightly. While the latter are slightly negative on balance, a fairly bullish mood still prevails in the social media sector.

Setbacks desired

With today's survey, the sentiment gap between private and institutional investors has narrowed somewhat. While the DAX has risen significantly over the past three weeks by around 7.3% (in points terms), sentiment among institutional investors, as measured by the Börse Frankfurt Sentiment Index, has deteriorated by 25 points. At the same time, the group of investors with a neutral sentiment has recently risen almost to the level of two weeks ago. Whether this is due to new bearish commitments or, as recently, profit-taking by former optimists: In any case, the DAX has not suffered any wounds from these declines. On the contrary: long-term demand, possibly also from abroad, is therefore likely to be primarily responsible for the DAX rally.

In the end, we are not talking about major pessimism with regard to the DAX, but it is the trend of the weeks that is likely to cause increasing concern, especially for the pessimists (40% of all respondents). For them, but also for the bulls who have now turned their backs on the DAX, even a correction to probably 18,330/380 would be a great relief, which is why we expect the first major demand there. On the other hand, the recent declines in the DAX have opened up the upside further, with the threat of a small short squeeze beyond the all-time high, i.e. above 18,900 points, possibly caused by pessimists, who would then probably have to pull the emergency brake. All in all, the prospects for the DAX have not deteriorated. 

By Joachim Goldberg

28 August, 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.  

• Previous Analyses
• Explanation of the Method