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The sentiment on the stock market is declining

Bull and Bear in front of the Frankfurt Stock Exchange

A market phase characterized by great uncertainty.

(Photo: dpa)

Dusseldorf The recent heavy losses on the German stock market are also reflected in the investor mood: it is currently as bad as the start of the war in Ukraine. This is the result of the Dax-Sentiment survey conducted by Handelsblatt among more than 7,000 private investors. “This is the aspect of panic,” commented sentiment expert Stephan Heibel. Evaluate the weekly survey for Handelsblatt.

The main German index, the Dax, lost 4.6% last week. The June maximum discount of 14,709 points is nearly eleven percent. Against this backdrop, it is not surprising that sentiment, which reflects investor sentiment, has dropped to minus seven.

The mood only worsened after the Russian invasion of Ukraine began in late February. “Before that, we had to go back to the Corona incident to find such an extremely depressed mood,” says Heibel.

Consequently, investors are unstable. Many of them weren’t expecting such a sell-off recently: 70 percent of respondents said they were surprised by the price trend. As a result, the uncertainty fell to minus 10.2. The uncertainty was greater at minus 12.3 last time during the Corona incident in March 2020.

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For a further classification, Heibel explains: “From values ​​of minus four we speak of extreme values. I can understand the uncertainty: neither the hesitant behavior of the European Central Bank nor the determined action of the Fed have managed to calm the financial markets. The feeling of helplessness is spreading ”. Because recently all the shares were sold. So there were no sectors where investors could save themselves.

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Two explanations for why prices continue to fall

In sentiment theory, the extreme values ​​of investor sentiment are actually a counter-indicator: if investors are euphoric, this is a warning sign. By that time, many investors will have already invested, leaving only a few who could still buy and thus drive prices up. Conversely, panic is considered a buy signal. By that time, most investors have already sold, leaving only a few sellers left to push prices further down.

At the moment, however, investor sentiment is already extremely negative. However, a reliable price base has not yet emerged. There are two possible explanations for this:

  • Or investors are holding onto their investments longer than usual this time and are afraid to resell. In this case, the bad mood would not be reflected in the deposits.
  • The second possibility, according to Heibel, would be that investors expect the end of Western dominance and are therefore selling in droves.

However, there are now signs that the mood is slightly improving. Expectations for the future have slightly increased, from minus one to minus 0.6. The value indicates “that many investors think the worst is over,” Heibel explains.

As a result, one in four respondents now say they want to buy stock in the next two weeks. As a result, willingness to invest jumped to plus 2.2 – and thus the highest since late March. “Bargain hunters are shuffling their feet,” says Heibel, commenting on this development.

The CEO of analyst firm AnimusX also advises investors to re-enter with caution: “Don’t put everything on a paper, because the problems are really overwhelming, even I have to admit.” which are extremely cheap. “In the ‘normal’ times of the stock market, you don’t buy these stocks because they are too expensive. Now they’re cheap, kind of a bargain, so you should at least hit it with small sums.

Professionals are more cautious than private investors

This is true even if a large company goes bankrupt due to the high cost of raw materials and China annexes Taiwan. “This would be my current impression, just confirmation of the worst fears,” says Heibel. And most of these have already been incorporated into current courses.

The Euwax sentiment of the Stuttgart stock exchange, where private investors trade, even shows that private investors are taking advantage of rising prices. This means that the money used can be multiplied. The corresponding value has risen to plus three, from the previous week it was still minus 6.5. The higher the value, the greater the surplus of call options, which benefit from rising prices, compared to the share of put products, which benefit from falling prices.

However, professional investors in Europe and the US are much more cautious. This is demonstrated by data from the European derivatives exchange Eurex and the US derivatives exchange CBOE. The number of safeguards increases here. In line with this, the investment ratio of US fund investors also fell from 50 to 32%.

feeling for gold

Precious metal is in fact considered a safe haven in times of crisis. But since its high for the year in March, the price has dropped more than ten percent. “The price of gold is going up and not going up even though the world is in chaos. The mood on the gold market is at its lowest, “observes Heibel.

However, gold’s point of view is put into perspective when looking at the yearly chart: because the price is currently at the level of the beginning of the year. It held up much better than the Dax, which lost 17 percent over the same period.

However, in view of continuing big concerns about the future, investors expect prices to rise again soon. In connection with the recent correction and the bad mood in the market, Heibel sees this as “a good starting position for rising prices”.

sentiment on oil

The mood on the oil market is good: the price of the North Sea Brent variety has risen from 90 dollars to more than 120 dollars since the beginning of the war in Ukraine. However, investors’ future prospects are worsening, according to the motto: “It can’t go on like this.”

Heibel sees this as a possible sign that the oil rally is taking a pause in the meantime, but points out, “For a definitive end to the oil price rally, we need exaggerated bullish expectations as well as euphoria.”

Mood about bitcoin

Bitcoin’s price has dropped by a third in the past week. Investor sentiment has also declined along with the price of the cryptocurrency. “We are measuring the most extreme despondency since the start of the Bitcoin survey. The five-week moving average is also at its lowest level. And future expectations for Bitcoin are also extremely negative. Here we see an image that signals fear and panic, “says Heibel.

According to sentiment theory, such extreme values ​​are also contraindicators for Bitcoin. A minimum for the price of Bitcoin would therefore be within reach. However, sentiment theory only says that a bottom is near, not where it is.

“In terms of timing, I think we should see a low in bitcoin within the next 10 days, which should set the sell-off bottom for many weeks, if not months,” says Heibel. “Unfortunately it is not possible to determine at what price this will happen in the next few days: whether it will be at the current 20,000 or only between 10,000 and 12,000 it is still open”.

There are two hypotheses behind polls such as Dax’s sentiment with more than 7,000 participants: While many investors are optimistic, they have already invested. So there are only a few left who could still buy and thus raise prices. Conversely, if investors are pessimistic, most of them have not invested. So only a few can sell and thus depress courses.

Do you want to take the survey? Then let yourself be automatically notified of the start of the sentiment survey and sign up for the Dax sentiment newsletter. The survey starts every Friday morning and ends on Sunday afternoon.

Moreover: Investors make these ten mistakes from the perspective of stock market psychologists

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