Market sentiment: "Profits taken as planned"

14 August 2024. FRANKFURT (Goldberg & Goldberg). There are now many commentators who see the significant slump in the DAX at the beginning of the month as a healthy correction. At least the stock market barometer was able to recover in the meantime and make up a little more than half of the massive price decline that occurred during the first few days of August. However, these volatile weeks on the stock markets have left their mark, as the Bank of America fund manager survey published yesterday (August 2 to 8) reveals. This is because international asset managers made significant shifts in favor of bonds and cash holdings and at the expense of equities. In July, 33% of respondents stated that they were globally overweight in equities, but this balance has now shrunk to 11%. A similar trend is also emerging for eurozone equities. Here, too, holdings have been significantly reduced over the past two months - most recently, only 4% of fund managers stated that they were overweight in European equities.

Meanwhile, sentiment among the institutional investors we surveyed with a medium-term trading horizon, as measured by our Börse Frankfurt Sentiment Index, has deteriorated by 15 points to a new level of -2 compared to the previous week - albeit probably for other reasons. It could almost be described as a script for the courageous optimists of the past few days, a third of whom have sold their investments again after an expected short-term interlude. 

Only a healthy correction

Interestingly, as is usually the case after strong rebounds and previous drastic price falls, practically no one dared to go short. In fact, there was “only” profit-taking, presumably mainly shortly before or in the zone between 17,800 and 17,850 points that we had forecast in the previous week. At the same time, the proportion of neutral investors is twice as high as a week ago, at 34% of all respondents.

There was a similar trend among private investors, whose Frankfurt Stock Exchange Sentiment Index
also recorded a decline: it fell by 11 points to a new level of +13. In this panel, the group of optimists decreased by 7 percentage points. Around half of the emigrants have even gone straight to the bear side, i.e. turned their commitment 180°. As usual, the investors surveyed via social media are more optimistic than the other investors, but the difference between the two subgroups has narrowed noticeable.

Optimists on hold

In today's survey, the sentiment gap between private investors and their institutional counterparts has narrowed somewhat, with the changes in sentiment pointing in the same direction as in the previous week. However, it is not only interesting that institutional investors did not venture onto the short side in today's survey, which we see as an indication that many investors also believe that the initial August weakness is now over. Moreover, their losses have not visibly harmed the DAX so far, especially as the stock market barometer was up 2.1% on the reporting date compared to last Wednesday.

This has neutralized a large part of the potential supply on the upside. Even if there is not much in the way of further gains for the DAX, the underlying momentum is unlikely to be convincing without the help of long-term capital flows, at least from a domestic perspective. This is because today's sentiment (and thus the positioning) is also balanced on a three- and six-month horizon and shows only minor skews. Overall, however, the situation for the DAX has improved, especially as the optimists who left today could return as buyers in the event of a reasonably interesting setback (presumably in the 17,300/350 range). 

By Joachim Goldberg

14 August, 2024, © Goldberg & Goldberg für boerse-frankfurt.de

The Börse Frankfurt Sentiment Index moves between -100 (total pessimism) and +100 (total optimism), the transition from positive to negative values marks the neutral line.

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