Market sentiment: "Early courage

15 March 2023. FRANKFURT (Börse Frankfurt). As if they had suspected it: more than a week ago, the majority of investors we surveyed seemed to have foreseen the impending disaster for the stock markets and were therefore rather skeptical with regard to the development of the financial markets. However, at the time of our last survey, hardly anyone could have imagined that the trigger for the significant drop in share prices on both sides of the Atlantic would be a bank failure in the USA. After all, for most players on the financial markets, the question up to that point was not whether the U.S. Federal Reserve would raise interest rates further at its meeting ending next Wednesday, but by how much. After the hearing before the Banking Committee of the U.S. Senate, Fed Chairman Jerome Powell - although he later tried to put this into perspective - implicitly left many stock market players with the impression that it could even be a rate hike of 50 basis points. And if the U.S. had not experienced the second and third largest bank collapses in American history in recent days, some strategists would today actually be betting on an interest rate step of 50 basis points with reference to Jerome Powell. But this is now moot. In the end, the domestic DAX is down 2.6 percent week-over-week since our last survey.

Bought into relative weakness

This significant DAX setback has obviously suited part of the pessimistic majority of institutional investors with a medium-term trading horizon that we surveyed. Our Börse Frankfurt Sentiment Index rose by 23 points to a new level of -3; incidentally, this is the highest level since January 14. At the same time, the group of bulls has increased by 13 percentage points, with more than three quarters of this increase being attributable to previously bearish players. In other words, not only have bearish positions in the falling market been closed out, but they have also been turned 180° into long positions.

There has also been a clear swing to the bulls among private investors. Because the Frankfurt Stock Exchange Sentiment Index in this panel has risen by 15 points to a new level of +8. Half of the migration to the optimists is made up of previously pessimistic investors who have turned their position from bearish to bullish - as we have often observed, this is a small group of around 5 percent of all respondents who tend to have a short-term orientation - while the other half comes from previously neutral investors.
 

Bargain hunters or confident bulls?

Today's survey shows two things. On the one hand, the price development, which temporarily meant a price loss of 4.9% for the DAX from the high point of the last survey, naturally suited many pessimists. They could have been content to take profits by buying into the weakness, in other words, to wait and see how things would develop. On the other hand, it may well be due to the significant downward trend of the DAX within a very short period of time, compared to the moderate increases of the previous weeks, that the impression has solidified, especially among institutional investors, that even bullish positions are justified in the weakness.

Whether these are bargain hunters or even players who have possibly already ticked off the US banking crisis remains to be seen. In any case, these commitments represent a burden for the DAX. This is because the mood can even be described as slightly optimistic, especially in relative terms over a three-month period; this is a high in sentiment this year. It remains to be assumed that the latest buyers will not remain loyal to the DAX for too long in the event of a further recovery and will probably realize any gains between 15,300/15,350 points. However, downward pressure would also arise in the event of further price losses of the DAX, because the recent buyers are then unlikely to watch too long, but pull the ripcord. So what still looks like a comparatively harmless correction today - in the big picture - could then expand into a larger downward movement.

8 March 2023, © Goldberg & Goldberg für boerse-frankfurt.de

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

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