Bull and Bear in front of the Frankfurt Stock Exchange

Many investors have been preparing for the fall in prices.


(Photo: dpa)

dusseldorf in german Dax Leading Index He did Weakened uptrend after the best start to the year in its history. “There is now discussion as to whether a looming recession could send stock markets back to their bear market or if we only see a brief respite,” says Stephan Heibel, CEO of analytics firm AnimusX.

A longer phase of falling prices is considered a bear market, and indeed a pullback after the strong rally seems delayed. this year is the dax increased about eight percent or more than 1000 points. Since the end of September it has been more than 25 percent.

But the Handelsblatt survey dax-Sentiment among more than 7,000 private investors reaches a different conclusion. “The potential for surprises is clearly up,” says Heibel, who assesses the weekly survey and adds other indicators. Therefore, the possibility that prices will continue to rise is greater than the risk that prices will fall.

What speaks against a major pullback, or even a correction of 10% or more, are the heavy coverings that investors have built up over the past week. This can be seen in the Euwax sentiment of the Stuttgart Stock Exchange, where private investors trade.

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A negative value means they assume falling prices, and last week sentiment collapsed to less than 15 percent. “Private investors are therefore expecting a stronger setback in the coming weeks and are hedging accordingly,” says Heibel.

This growing skepticism is also reflected in the opinion poll. Investor confidence has fallen to 1.1 from 4.5 the previous week. “The euphoria of the previous week has already evaporated, the investor mood is neutral,” observed sentiment expert Heibel.

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The need for hedging is obviously similar for institutional investors. The put/call ratio on the European Eurex futures exchange has jumped to 3.6 percent. Therefore, professionals are increasingly putting puts into their portfolios, which increase in value when prices fall.

Since many market participants expect prices to fall, this scenario has the least potential for surprises. “Heavy hedging buying in Eurex and Euwax should ensure that we won’t see a resumption of the bear market just yet, looking forward to the next few weeks,” Heibel explains.

Hedges spread a safety net for the Dax

Because put options work pretty much like short sales. In a nutshell, this means that if an investor buys a product selling on the Dax, the bank has to sell the Dax in the background. And when the derivative is sold, the Dax must be bought back. Strong hedges create a kind of safety net that cushions a price drop to a certain extent.

>> Read about it: Investing with low risk: the return of integral investments

This effect could already be observed to some extent in the last week. The setback did not even allow the Dax to fall below 15,000 points in the long term. “Almost no one was really surprised by the setback,” says Heibel. Therefore, complacency remains with a value of 0.8. “The uncertainty that weighed on investors throughout the past year is far from returning after a few days of respite. Small setbacks are easily tolerated.”

The respirator is even considered healthy. Future expectation has increased from minus 1.1 to plus 1.5. So investors are getting a little more bullish.

Willingness to invest is almost constant, falling from 0.9 to 0.8. “Obviously, a lot of investors have been positioned for a long time, but they don’t want to follow the current price level,” says Heibel.

As a result, the potential for surprises is on the upside, as Heibel explains: “If, contrary to the expectations of domestic investors, the consolidation of the Dax does not cause the Dax to drop significantly again in the coming days, where then hedging his positions of hedging, then domestic investors could find themselves under pressure and have to liquidate their hedging positions as prices rise.

The rule of thumb is that the longer there is no significant price drop, the greater the pressure on hedging positions. If they then unravel, the rally will be further fueled, not only through short buying, but also as previously underinvested investors chase higher prices.

Indeed, the decisive initial impetus for rising prices could come from international investors: in the USA the put/call ratio on the Chicago futures exchange has dropped significantly to 1.0. Therefore, the need for coverage is decreasing. Appropriately, US fund investors are getting bolder, the US fund investor investment ratio has risen 20 percentage points to 65 percent. So there is a “discrepancy of sentiment among investors in Germany and in the United States,” says Heibel.

“We can see from the international payment flows and the strong increase in the exchange rate of the euro against the US dollar that a good part of the stock market is picking up in Germany it goes back to international investors,” continues Heibel. “Obviously international investors view the situation in Germany more positively than we would like to admit.”

There are two assumptions behind the polls, such as Dax sentiment with over 7800 participants.: If many investors are bullish, they have already invested. So there are only a few left that could still buy and therefore push prices up. Conversely, if investors are pessimistic, most of them have not invested. So only a few can sell and thus depress the courses.

Do you want to participate in the survey? Then be automatically informed about the start of the opinion poll and sign up for the Dax opinion newsletter. The survey begins every Friday morning and ends on Sunday afternoon.

More: 12 tips from stock market psychologists for making smart trading decisions.

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