The rally can continue – corrections are likely to be short-lived

Bull and Bear in front of the Frankfurt Stock Exchange

The bulls and thus the optimists in the markets have taken the lead again.

(Photo: dapd)

Düsseldorf Investors worldwide are focusing on two topics: the transfer of power from still-US President Donald Trump to election winner Joe Biden and the news about vaccines against the corona virus. The developments are positive for the markets on both points.

Trump is still fighting against the election result, but has initiated the handover at the same time. It is foreseeable that he will vacate the White House. With vaccines, it is now about the speed of distribution and therefore no longer the question of whether Corona will be defeated, but only when.

Accordingly, the data from the current Handelsblatt survey Dax Sentiment also show that prices on the German stock market are likely to rise further. Sentiment expert Stephan Heibel says after evaluating the survey: If there is a setback, purchases should be made early, so they should remain small. Only a surprising, very negative report could reverse this scenario.

Because the continued high optimism for the future, coupled with a high willingness to invest on the part of domestic investors, give the Dax good support, as in the previous week. A stronger sell-off is hardly to be feared. “At the same time, the investor sentiment is good, but not yet euphoric,” says the owner of the analysis company Animusx. According to sentiment analysis, euphoria is a contra-indicator and thus a signal for falling prices.

In the USA, things are looking more dangerous: there has been a lot of optimism there for much longer, so that the rally could end there at some point. Heibel then expects the following scenario: “If, based on the US markets, a consolidation should take place, then many investors in this country would consider lower prices as a buying opportunity and thus curb price losses early on.”

graphic

In the absence of negative reports, the stock markets therefore rallied slightly in the past trading week. The Dax rose by 1.5 percent. Accordingly, investor sentiment has jumped again to plus 2.8 and shows a moderate party mood, which corresponds to the good price development.

Complacency also continues to rise. A value like the current 1.6 has not existed since the Corona crash in March. The high level of complacency among investors is not surprising, as the prices of almost all stocks are rising: Both the so-called corona winners and cyclical stocks, dividend generators and growth stocks.


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Everyone who is invested can look forward to price gains. So complacency is likely to remain high until the Corona winners are sold or the current rally “gets hot” among the cyclicals.

Future optimism remains at a high level of 4.4, the bulls clearly make up the majority. The optimism is accompanied by a still high willingness to invest of 3.2, which serves as a good support for the stock market.


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The Euwax sentiment of the Stuttgart Stock Exchange, on which private investors trade, shows an increasing propensity to hedge with a value of minus six. So there are more put than call leverage products in the portfolios. Apparently, private investors want to hedge the price gains of the past weeks and months with these put notes, which gain in value when prices fall.

To put it into perspective: at minus six, the current Euwax sentiment is still a long way off from the extremely strong hedging purchases of June. At the beginning of June of this year, this indicator reached a value of minus 15. At that time, the leading German index was trading at around 12,800 points. The subsequent slide to 11,600 points within a few days laid the foundation for the subsequent rally to 13,460 points, the highest level since the crash in mid-March 2020.


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Professional investors who hedge themselves via the Frankfurt derivatives exchange Eurex show a balanced put / call ratio of 1.5. The hedging purchases of the previous weeks are thus balanced again.

The put / call ratio on the Chicago futures exchange CBOE is still extremely low and continues to indicate a very bullish positioning in the USA. This is also the case with the US fund managers who, with an investment quota of 107 percent, continue to speculate on rising prices. The bull / bear ratio of US private investors continues to show that bulls are overweight at 18 percent.


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The “fear and greed indicator” of the US markets, calculated using technical market data, has jumped to 91 percent and shows extreme greed. Other technical indicators signal an overbought market condition. All of this data across the Atlantic shows that consolidation on Wall Street is long overdue.

Would you like to take part in the survey? Then you will be automatically informed about the start of the sentiment survey and sign up for the Dax Sentiment newsletter. The survey starts every Friday morning and ends Sunday noon.

More: Equity professionals are betting on these Brexit bargains.

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Rally is intact but the risk of a correction is greater

Frankfurt Stock Exchange

The professionals are currently hedging themselves in the markets like private investors.

(Photo: dpa)

Düsseldorf Investors firmly believe that prices on the German stock market will continue to rise: The mood is more bullish than it has been since autumn 2017. This is shown by the current evaluation of the weekly Handelsblatt survey Dax Sentiment among more than 3,600 investors.

For comparison: in the fall of three years ago, when the mood was even more positive than it is now, US President Donald Trump announced the corporate tax reform. Subsequently, the stock markets rose by 13 percent.

But in the past three weeks, the Dax has already jumped 14 percent. A pure comparison of the current sentiment figures shows that the impetus for rising prices has already been “processed” on the stock exchange. That optimism would have to increase further to keep this rally going.

“From a purely mood-related point of view, this is of course not easy,” explains Stephan Heibel, who evaluates the weekly survey. His conclusion from the pure comparison of numbers: “The risk of a correction increases.”

graphic

But there are a few reasons why optimism could well be even greater. The surprising news about the Covid-19 vaccine from Biontech caused the first surge. The news catapulted the stock markets further up, by almost five percent last week.

More similar messages could follow. The pharmaceutical companies Moderna and Curevac develop vaccines on a similar basis as Biontech, positive test results can now also be expected from these companies. At the same time, a whole series of test phases with various drugs for the treatment of Covid-19 is running. Any publication of positive test results should further heat up the mood and cause prices to rise further.

But a look at the situation in the USA shows a different picture: there, the number of infected people has doubled within ten days. What if the situation in the US gets out of hand in some regions? President Trump does not want to order a lockdown. “There are definitely developments that could put an abrupt end to the rally,” says Heibel, owner of the analysis company Animusx.

Because of these two contradicting signals about vaccines on the one hand and the situation in the USA on the other, Heibel expects another bumpy rally. “There will be plenty of opportunities to throw unpleasant stocks out of the portfolio and collect new favorites at low prices,” he expects.


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Current survey results

Investor sentiment cannot really enjoy this brilliant rally. With a value of plus 3.1, the mood has decreased slightly compared to the previous week (plus 3.8). Compared to the euphoria almost reached the previous week, the mood has fallen back to a moderately positive level.


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Complacency is still neutral with a value of plus 0.7 percent. The uncertainty typical of the Corona months has subsided. But self-confidence, which is typical for the attitude of investors after significant price gains, is not yet evident: the price jump last week came too surprising.

Optimism for the future has risen again from the high level of the previous week, by 1.2 percentage points to plus 5.2 percent. Such an increase means that the rally could well continue.

But the willingness to invest has fallen from 3.8 to a value of only 3.4. That is still a solid level, but the high values ​​of the two previous weeks have declined. “Either people have bought in the meantime, or, I think more so, the prices are now too high for investors to buy,” explains Heibel.


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The Euwax sentiment of private investors shows a slight propensity to hedge with a value of minus three. Institutional investors who hedge themselves via Eurex also used the rally last week to increase their put positions.

The put / call ratio of the Chicago futures exchange rises slightly from a low level, in the USA the long speculations in the rally are now slowly being resolved.

US fund managers have bought a lot of shares, the investment ratio jumped 27 percentage points to 96 percent. Now you know who drove the prices up.

For the first time since February, the bulls have regained the upper hand in the bull / bear ratio of US private investors, with 31 percent. “That corresponds to the highest value I can remember,” says sentiment expert Heibel.


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The “fear and greed indicator” of the US markets, calculated on the basis of technical market data, continues to show a neutral state at 55 percent. Short-term technical indicators for the US equity market are showing a heavily overbought state of the market, which signals a correction.

Would you like to take part in the survey? Then you will be automatically informed about the start of the sentiment survey and sign up for the Dax Sentiment newsletter. The survey starts every Friday morning and ends Sunday noon.

More: Which forms of investment will prove themselves despite Corona – and where experts still see potential

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Many investors missed entry into the rally

Frankfurt Stock Exchange

The professionals are currently hedging themselves in the markets like private investors.

(Photo: dpa)

Düsseldorf The mood of the investors is like a wild roller coaster ride. A week ago there was still extreme dejection, now the sentiment is not far from a party mood.

This is shown by the current survey data from the Handelsblatt survey Dax Sentiment, a weekly survey of more than 3500 investors. This significant change is also surprising for Stephan Heibel, who evaluates the survey. “With a weekly change of plus 9.8 percentage points, there was the largest change in sentiment since the survey began in September 2014,” he explains.

Such sentiment values ​​are counter-indicators. The dejection from a week ago formed the basis for the current rally. Accordingly, the sentiment expert said last Monday: “The mood for the Dax looks much more constructive than the week before, it is apparently too late to sell.”


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Does the now very positive mood mean that prices will soon fall again? Not necessarily, says the owner of the analysis house Animusx. “The rally can go on because of the joy of Joe Biden’s election victory until skepticism about the economic effects of the corona measures prevails,” he said.

Heibel can understand the skepticism of many investors due to Corona. However, they were interviewed before Biontech stated that it would file a registration application for a corona vaccine. This message should lead to a reassessment of the situation.

Politically, the election victory of Joe Biden has changed little. The stalemate between Congress and Senate will lead to little change. “The company results of the past weeks have been outstanding, analyst expectations should be renamed to analyst fears”, adds the Animusx managing director.

The current poll numbers

The survey this week recorded the biggest change in sentiment since the survey began in September 2014: After a value of minus 6.0 percent last Monday, the short-term mood has risen to 3.8 percent. From the mark of 4.0 percent, there is an extreme party mood.

The second and third largest increase in sentiment in the Handelsblatt survey occurred in November 2016 – also after a presidential election in the USA.

On November 7, 2016, right after Donald Trump’s surprise victory, investor sentiment jumped 7.9 percentage points. However, there were three weeks of doubts as to whether it could be really good when a Donald Trump is President. The mood sank and fluctuated around the zero line.

Shortly afterwards there was the next upward outbreak on the stock markets, the mood jumped 8.5 percentage points in the last week of November. The Dow Jones has since jumped from 11,500 points to 28,390 points.

Satisfied or insecure?

At the moment, investors should actually be satisfied after the significant price gains in the previous week, but they are not: A value of minus 0.2 percent indicates neutrality and can even be interpreted as confusion. So investors are happy about the price increase, but do not understand how they earned it.

The future expectation remains at plus 4.0 percent. A “bullish value”, which however has fallen slightly compared to the previous week.

A week ago they were pleased that there would soon be clarity about the future line of US policy. A large part of the short-term positive developments has already been priced in with a Dax price increase of eight percent in the past week.


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However, not all investors used the setback of the previous week to get started. The will was there, after all, at plus 4.5, the willingness to invest was as high as it was during the corona crash. The willingness to invest is currently falling to a value of 3.8, which suggests that many investors have missed the opportunity to get in at the low prices of the previous week.

Neutral attitude of private investors

The Euwax sentiment of the Stuttgart Stock Exchange shows a comparatively neutral attitude of private investors. The strongly bullish positioning that had formed in the sideways movement on the stock markets over the summer was reduced in October to such an extent that the hedging transactions predominated.

This overhang has been reduced again in the past few days. It remains to be said: after the strong fluctuations, private investors are now positioned neutrally.

The situation is completely different with the professionals who hedge themselves via the Frankfurt derivatives exchange Eurex. A week ago, the put-call ratio was 4.8, the highest in history. The investors had therefore bet on rising prices and were apparently right.


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Today, however, the put-call ratio has collapsed to its lowest level in a year (0.4): The long speculations have been resolved, and now the professionals prefer to hedge against falling prices. After today’s news about the corona vaccine, that should still cause turbulence.

The put-call ratio on the Chicago futures exchange is still very low, indicating a strong propensity for US investors to hedge. Pessimism or skepticism dominate there.

The bull-bear ratio of US private investors shows a slight overhang of the bulls with a plus of 6.5 percent. In the weeks before, the bears dominated. The “fear and greed indicator” of the US markets, calculated on the basis of technical market data, shows a neutral state of 41 percent, as do other rather short-term technical indicators.


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There are two assumptions behind surveys such as the Dax Sentiment with more than 3500 participants: If many investors are optimistic, they have already invested. Then there are only a few left who could still buy and thus drive prices up. Conversely, if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress prices.

Would you like to take part in the survey? Then you will be automatically informed about the start of the sentiment survey and sign up for the Dax Sentiment newsletter. The survey starts every Friday morning and ends Sunday noon.

More: Hope for corona vaccine divides the stock exchange world anew

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Demo with thousands of “lateral thinkers” in Leipzig dissolved

NAfter numerous violations of the meeting requirements, the city of Leipzig has resolved the “lateral thinking” demo against the corona policy. The city announced this on Twitter. According to the police, the organizers called on around 20,000 participants on Augustusplatz in the city center to follow suit. “We will now leave the stage, the meeting is dissolved,” said the organizers in the afternoon. “Please be peaceful.”

At the demonstration, most of the participants had previously violated the corona rules. Hardly anyone had worn a mouth and nose cover or kept the minimum distance of 1.50 meters.

Significantly more people came to the demo in downtown Leipzig than registered. The police assume 20,000 participants, said police spokesman Olaf Hoppe on Saturday afternoon. “This is another breach of conditions.” Only 16,000 participants were registered for the demonstration against the corona restrictions.

Because of the high attendance, the organizers of the “lateral thinking” demonstration had to interrupt their rally for a while. They called on the several thousand participants to make full use of the event space. After about half an hour, the rally continued. The police had previously significantly enlarged the meeting area. The rally was extended to the inner-city ring and adjacent streets on Saturday afternoon so that the numerous demonstrators can keep the minimum distance.

Almost nobody wore a mask

The participants did not initially do this and other corona protection measures were also disregarded. “The emergency services speak to people without a mask, if we are shown a certificate, we compare it with the information in the identity card,” said a police spokeswoman. “But it is difficult to control completely with this amount.”


This demonstrator made a mask tree for herself without wearing a mask over her mouth and nose at the moment the recording was made.
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Image: dpa

“Think outside the box” founder Michael Ballweg blamed the police for the crowd. “Despite pending legal proceedings, we were not allowed to set up,” Ballweg told the German Press Agency. The city initially wanted to move the event to the outskirts, and the Bautzen Higher Administrative Court only approved the rally in the city center on Saturday morning.

Counter-demonstrators clearly outnumbered

Meanwhile, several hundred counter-demonstrators gathered on the sidelines of the lateral thinking demonstration. Most of them stood in the afternoon on an access road to Augustusplatz, where the “lateral thinking” rally took place. In terms of numbers, however, the counter-demonstrators were clearly inferior.

Lots of people, few masks: The city had the demo dissolved because of several violations.


Lots of people, few masks: The city had the demo dissolved because of several violations.
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Image: EPA

Among other things, the “Leipzig takes place” alliance called for counter-protests. “It wasn’t even our goal to be more,” said Irena Rudolph-Kokot from the alliance on the sidelines of the event of the German Press Agency. Above all, they wanted to show their presence. Originally the counter-protest was supposed to take place on Augustusplatz and the “lateral thinking” demonstration, as mentioned, outside the city. The counter-demonstrators criticize the fact that the Bautzen Higher Administrative Court then awarded the central square to the “thinking outside the box” on Saturday morning.

The decision was an “official approval of a super-spreader event with announcement”, criticized Rudolph-Kokot. “Because they have announced that they don’t want to wear masks.” It is an imposition for the city and the citizens that demonstrations are carried out in a space that is far too small without keeping a distance. This will nullify the corona protection ordinance.

Protesters sit on rails in downtown Leipzig


Protesters sit on rails in downtown Leipzig
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Image: EPA

Counter demo canceled: “location too dangerous”

According to police reports, thousands of participants opposed the dissolution. Some chanted “Peace, freedom, no dictatorship” and “Merkel must go”. In the area of ​​the main train station, a lock had been opened, the police said on Twitter. “Participants in the former assembly run an elevator that has been classified as prohibited by the assembly authorities.” At barriers, there were “numerous attacks” on police officers.

The alliance “Leipzig takes place”, which had organized a counter-protest, called on Saturday evening to withdraw. “We consider the situation too dangerous,” wrote the alliance on Twitter.

Physical attacks against journalists

The German Union of Journalists (DJU) registered several attacks against journalists during the demonstration. In an initial assessment, Jörg Reichel, state manager of the DJU Berlin Brandenburg, spoke of at least 32 journalists who were “affected by physical attacks and disabilities,” as he wrote on Twitter.

The attacks were mainly from participants in the “#Corona denier demo”, said Reichel. “Our fears that the demonstrations could again lead to hostility and threats of violence against journalists have unfortunately come true,” said Tina Groll, chairwoman of the DJU in Verdi.

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It’s too late to sell

Frankfurt Stock Exchange

The professionals are currently hedging themselves in the markets like private investors.

(Photo: dpa)

Düsseldorf After the Dax fell by 8.6 percent last week of trading, many investors are asking themselves the question: Is this just the beginning of a crash like the one we experienced in the spring?

A look back helps to answer this question: The corona crash in March took place in the run-up to the contact restrictions and lockdown measures, with the introduction of the measures the stock exchange found a bottom and then recovered quickly. This time, the lead-up to the lockdown is only short; the measures are implemented early and consistently.

“I can therefore hardly imagine that we will experience another Corona Crash 2.0, the intensity of which comes close to the first one in March,” says sentiment expert Stephan Heibel, who evaluates the weekly Handelsblatt survey Dax Sentiment.

With a great willingness to invest at the same time, the mood for the Dax looks much more constructive this week than it did last Monday; it is apparently too late to sell.

This inevitably leads to the second question: Why was there a sell-off on the German stock market, even though Germany acted very early and very consistently in order to keep the effects on the economy as small as possible?

graphic

“When I look at the mood among domestic investors, I can see little panic,” explains Heibel. On the contrary, private investors are bravely taking hold and the professionals seem to have already been so heavily invested that they were caught off guard by the intensity of the sell-off and have now bought many put options as hedging.

Apparently, many foreign investors have sold. In the middle of last week, the sentiment expert at Deutsche Börse, Joachim Goldberg, identified this group of investors as sellers in his analysis. Heibel sees it similarly. After all, the euro fell 1.5 percent against the dollar last week and capital was withdrawn from Europe.


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The owner of the analysis company Animusx can understand the flight of foreign investors from Europe. France is going into lockdown, Belgium is even closing all shops that sell non-essential goods, and Spain is no longer in control of what is happening. “International investors no longer differentiate whether Germany is doing a little better,” explains Heibel.

In this respect, it is difficult to use the Handelsblatt sentiment data to estimate how long international investors will continue to sell German stocks and thus exert pressure on the Dax.

But why was there a sell-off in the USA too, but at the same time it was weaker? On the one hand: It was overdue after a long period of rising prices. For a few weeks, Heibel has been warning of falling prices in the USA and a sell-off in this country.


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On the other hand, there is uncertainty about the outcome of the election in the USA. Not about who will win, because Wall Street doesn’t care now. But about whether there is a dirty aftermath. Will the losing candidate acknowledge his defeat or will there be legal repercussions? The increasing corona numbers in the USA were not a reason, because the economy there continues.

Heibel also moves away from the fact that panic is a necessary condition for a bottom in the stock market. According to sentiment analysis, such a panic is necessary so that after a sell-off panic only a few buyers ensure prices rise again. “It is enough to look at the behavior of the professionals: never before have so many put protection been purchased in such a short time,” he explains. “Well, if that’s not a touch of panic.”

Current survey results

The sentiment, the short-term investor sentiment, has collapsed to a value of minus six and thus shows the extreme pessimism of investors. Sentiment was last at a similarly low level in March during the Corona crash. “It is now too late to sell, we had many weeks to do so,” concludes sentiment expert Stephan Heibel.

Complacency also slips into extreme values: a value of minus 6.8 indicates very high levels of uncertainty among investors. The intensity of the sell-off has apparently exceeded the forecasts made by the bears in the previous weeks. “Even I did not expect to fall below the 11,700 points in the Dax,” admits Heibel openly.

The future expectation of the Dax stand in three months has jumped to plus five. The logic behind it: As the price level falls, optimism for the future increases because stocks have become significantly cheaper. Investors do not see any really negative developments in recent events, at least economically.


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The current optimism about the future is even higher than at the time of the Corona crash in March of this year and is at a similar level to the last time in autumn 2017.
At that time, US President Donald Trump pushed through his corporate tax reform against great resistance from the opposition. Then the Dax rose by more than 1500 points to 13,525 points in early November.

The willingness to invest has jumped to 4.5 and is therefore also at an extremely high level, although we saw even higher values ​​in the meantime last March.


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The Euwax sentiment of the Stuttgart Stock Exchange, in which private investors trade, is fairly unaffected by the latest upheavals in the markets. With a value of minus 2.5, private investors protect themselves little against further falling prices. The professionals who hedge themselves via the Frankfurt derivatives exchange Eurex act completely differently: The put / call ratio has jumped to 4.8, the highest value in recent years.

Apparently, after the experiences during the Corona crash in March, the professionals do not want to be caught on the wrong foot a second time. Accordingly, they use put options to hedge the profits that have been painstakingly achieved over the past few months.

The put / call ratio on the Chicago futures exchange CBOE in the USA, however, shows a completely different behavior of the investors there: With a value of 0.47, investors in the USA are strongly speculating on rising prices. The difference couldn’t be bigger.

However, US fund managers have further reduced their investment ratio, from 84 percent in the previous week to 78 percent. US private investors are neutral, bulls and bears are in balance. The “fear and greed indicator” of the US markets, which is based on technical market data, shows slight fear with a value of 27 percent. From 25 percent, this indicator signals extreme fear, which is helpful for bottoming out on the stock market.

Short term technical indicators on the S&P 500 indicate an oversold market situation. With this market condition it is too late to sell, at least in the short term a countermovement should set in soon.

There are two assumptions behind surveys such as the Dax Sentiment with more than 3500 participants: If many investors are optimistic, they have already invested. Then there are only a few left who could still buy and thus drive prices up. Conversely, if investors are pessimistic, the majority of them have not invested. Then only a few can sell and thus depress prices.

Would you like to take part in the survey? Then you will be automatically informed about the start of the sentiment survey and sign up for the Dax Sentiment newsletter. The survey starts every Friday morning and ends Sunday noon.

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