Market sentiment: "Weakness wanted"

11 September 2024. FRANKFURT (Goldberg & Goldberg). The DAX's performance since the beginning of the month has certainly reminded many market participants of the slump in share prices at the beginning of August. The stock market barometer has indeed weakened by almost 4% at times since the beginning of the month, but this setback has so far been much more moderate compared to August. It is true that many people have pointed to the traditionally weak stock market month of September, with its potentially high potential for unrest. However, we also know that the bearish majority of the institutional investors we surveyed were probably not disappointed by a decent correction. Even though the DAX, in contrast to the US indices, fell yesterday, at the time of the survey there was a weekly loss of just 1.4% since our last sentiment survey.

At the same time, sentiment among the institutional investors we surveyed with a medium-term trading horizon has improved somewhat compared to the previous week. Our Börse Frankfurt Sentiment Index has improved by7 points to a new level of -4. 

Once again escaped unscathed

As expected, the bear camp has shrunk (by 5 percentage points). Slightly more than half of those affected were content to take profits or to close out previous losses at the cost price level and moved to the sidelines, while the rest even ventured directly to the bull side. It was probably this small group (2 percent of all respondents) that actually closed out a large part of the recent downward correction with a tidy profit.

At first glance, however, not much has changed among private investors compared to the previous week. Here, our Börse Frankfurt Sentiment Index has only fallen by 2 points to a new level of +2. After all, this is the third consecutive decline in this panel. However, this superficially quite manageable shift conceals significant changes.

Successful private investors

The normally high level of optimism among private investors, who we survey via social media, has decreased significantly compared to the previous week. In contrast, the previously bearish sentiment among other private investors has improved significantly. There was a significant shift in this subgroup, as around 6% of respondents turned their position 180° from bearish to bullish, encouraged by profit-taking.

With today's survey, sentiment among private and institutional investors has converged again. This development was triggered by part of the private investor panel and the closing out of bearish exposures among institutional investors. Fundamental considerations are less likely to have played a role here. Instead, we assume that some professional investors in particular were motivated by the desire to close out older bearish positions without incurring losses.

However, once these temporary imbalances have been corrected, the domestic potential for a larger DAX trend has diminished. In fact, the sentiment of institutional investors is almost at a neutral level in a three- and six-month comparison, although the courage of investors to take new bullish positions now should be “rewarded” with a risk premium (such as a DAX level just below 18,000). Even if, on the other hand, the upper side could be set at 18,700/750 for any profit-taking from the most recent bullish engagements, these positions are not large enough to determine the market. Rather, it is the long-term capital flows (primarily from abroad), which are currently difficult to assess, that will determine the next trend direction for the DAX. 

By Joachim Goldberg

11 September, 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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