Market sentiment: "Little hope of a rally"

27 November 2024. FRANKFURT (Goldberg & Goldberg). Since our last sentiment survey, the DAX has seen a trading range of 3.0%, but in a weekly comparison, the stock market barometer was only marginally above the previous week's level at just 0.5%. At the beginning of the reporting period in particular, things did not look particularly encouraging for local shares. On the one hand, due to the unfavorable macroeconomic situation and the uncertain outlook resulting from the news about the tariffs announced by President-elect Donald Trump and his nomination of further members of his future administration. Nevertheless, the initial setback to the level of just under 18,900 points was not likely to cause panic among stock market participants. In the end, it could have been the nomination of Scott Bessent, whom Trump had proposed as a candidate for US Treasury Secretary, which - in contrast to the other ministerial candidates put forward - was also positively received by the stock markets here in Germany and lifted the DAX out of the danger zone and upwards.

However, the institutional investors we surveyed with a medium-term trading horizon do not seem to be planning for too much upside potential for the DAX. Despite the shortened trading week in the USA due to Thanksgiving, which is often said to have a positive impact on share prices. This is because our Börse Frankfurt Sentiment Index fell by 11 points compared to the previous week to a new level of +14 (exactly the same level as two weeks ago).

Active bears 

The bear camp has again grown by 8 percentage points, primarily because previously neutral investors have probably used the interim DAX high (above 19,400 points) to once again go short. However, just under 40% of the new bears come from former optimists, who on balance are likely to have turned their position 180° from “long” to “short” at the upper end of the trading range during the past week.

The changes among private investors were less pronounced. The Börse Frankfurt Sentiment Index in this panel even rose by 3 points to a new level of +19. However, the bottom line is that there have been few new bullish commitments - the rise in the index is primarily due to profit-taking from short positions that have been covered. A look at the sub-groups shows that it was primarily private investors surveyed via social media who turned bullish (albeit to a lesser extent). There has been little change among other investors, apart from a reduction in the polarization between bulls and bears.

Paralyzed bulls

The bottom line is that some of the pessimists among institutional investors who disappeared in the previous week have reappeared at a higher DAX level. This is probably one of the reasons why the DAX was unable to hold its ground there, meaning that the recent setback was home-made. On the other hand, it is noticeable that many optimists were unwilling or unable to take advantage of the DAX's interim recovery. Presumably because the purchase prices of their investments are on average slightly above 19,500 DAX points. If the DAX were to rebound, we would expect to see further supply of shares in this area. On the downside, the situation has improved somewhat compared to the previous week, as the new bears would probably want to close out their commitments again at a profit at a lower level between 18,850/900 and thus create demand in this area, at least temporarily. This means that the situation for the DAX, which is still unfavorable in terms of sentiment, has improved somewhat compared to the previous week.

By Joachim Goldberg

27 November, 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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