In the current situation, there are many indications that the German benchmark index will climb record highs again in the coming days. The previous high is 14,132 points and was reached last Friday. These are the reasons.
Longer consolidations often follow record highs on the stock exchanges. Investors have to adjust to the higher prices, take profits and then wait again for cheaper entry prices. But in the current situation, the wait has not been worth it. The leading German index has only dropped 325 points since the record high.
The price slide to 13,807 points last Monday, the lowest point of the correction, was over within 15 minutes, after which the Dax rose again quickly. Only a few investors could have taken advantage of this opportunity in such a short time. Prices above 14,000 meters would be a first signal towards a record high.
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2. Investment professionals are pessimistic
A record high almost always creates a euphoric mood among investors, at least when they are sufficiently invested. This is also shown, for example, by the Handelsblatt survey Dax Sentiment among more than 4,000 private investors.
But the current survey by the Frankfurt Stock Exchange, in which institutional investors are also asked, allows a different conclusion. As a result, 40 percent of investment professionals are still pessimistic and are waiting for a major setback.
This result is also supported by the data from the Frankfurt derivatives exchange Eurex. Institutionals are slowly starting to buy more put options in order to speculate on falling or to hedge their existing investments. This can also be derived from the so-called put / call ratio of Eurex.
3. Private investors continue to bet on rising prices
Much has been written about the young traders who were new to the market in the wake of the Corona rally, attracted by inexpensive platforms such as Trade Republic in Germany and Robinhood or E-Trade in the USA. They don’t care about analyst opinions, they buy their favorite stocks, with which they have probably made high (book) profits in the past few months.
You can smile at their behavior, but you should definitely take them seriously. The Frankfurt survey also shows that private investors are currently behaving completely differently than professionals. The majority of the “private individuals” are apparently reliant on a continuation of the upward trend and do not even think about taking accumulated profits with them. Such behavior can take revenge in the long term, but in the short term it should spur prices.
4. Sudden course jump possible
The pessimistic behavior of institutional investors, however, allows a completely different conclusion. With every new all-time high there is a risk that the current pessimists will lose their nerve and have to sell their holdings on falling prices.
Many of the pessimists will not be able to afford a plus of another two to three percent, says behavioral economist Joachim Goldberg, who evaluates the Frankfurt survey. That could be a so-called short squeeze, a price jump in the German benchmark index for no fundamental reason.
Because speculation on falling prices works like a kind of short sale, only that the bank organizes it in the background. Short sellers borrow and sell stocks. Before they can return the stock, they must buy the stock again. Therefore, the stock has to be bought again in order to end a short investment.
4. Dax has good support
Investment professionals and private investors have a completely different point of view, especially at the start of the year. In the private sector, the entry price is important, from which the value development in the depot can be derived. At the latest when the shares fall back towards the entry price, the papers are sold.
The professionals, on the other hand, are practically making a fresh start at the beginning of the trading year. The performance of your Dax portfolio is based on the closing price of the previous year. This is 13,919 meters. “This mark should also be roughly the level at which at least some of the currently ailing investors would probably be willing to take back bearish commitments,” assumed Goldberg.
View of the Heidelberg Cement share
Heidelberg Cement: Investors follow a buy recommendation for the building materials manufacturer’s share. The papers rise by 0.9 percent. The analysts from Berenberg recorded the rating of the building materials group’s title as “Buy” and set a target price of 75 euros. The papers went off the market on Wednesday at 67.54 euros and have gained around 44 percent since October 2020.
US yields are falling again
Federal Reserve Chairman Jerome Powell could give the go-ahead for further highs this Thursday. He speaks at Princeton University after the stock market closes in Germany.
Because his statements could influence the yields on US government bonds, ultimately a disruptive factor for the price development of the stock markets. Last week, the value for ten-year government bonds was less than one percent. This value is currently 1.1053 percent, which is well below Tuesday’s 1.1855 percent.
The yields on US Treasuries have a guiding role for the financial market as a whole. Further rising yields would speak for a stronger dollar and against further rising share prices, bonds would then be an alternative.