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Düsseldorf The German stock market is based on the high profits of the previous day. In midday trading, the Dax rose 1.7% to 12,532 points.
Yesterday, Wednesday, the Dax rose two percent despite an uncertain US election result and was out of trading at 12,324 points. It was noted that Wednesday’s trading range was a whopping 480 meters, similar to the US election four years ago.
The fact that the German benchmark index continues to rise today is mainly due to foreign investors. The rise of the euro against the greenback by 0.8 percent to $ 1.1811 shows that much capital is flowing into Europe.
At first glance, it’s a strange situation on the financial markets: stock prices are rising, even though the US elections offer the worst case scenario: a head-to-head race with an open election result. Donald Trump is also threatening to appeal to the Supreme Court to stop the vote count. This could lead to a week-long deadlock.
Even in the US Senate, it is currently unclear whether the Democrats or Republicans will win a majority. In reality, this scenario should have led to falling prices, perhaps even a sell-off in the markets.
But the opposite happened. How can this be explained? Three points were decisive for the development.
On the eve of the US election, the professionals apparently panicked. Never before have institutional investors bought so many hedges in such a short period of time to protect themselves from price losses. Such put options increase in value when the Dax falls. The put-call ratio on the Frankfurt derivatives exchange, Eurex, jumped to 4.8, the highest value in recent years.
The professionals apparently wanted to secure their hard-earned profits in recent months ahead of the US elections. But now the put-call relationship is completely reversed. The current value of 0.5 indicates: Suddenly, the “Instis” rely heavily on rising prices. Speculation among professionals about rising prices over the past twelve months hasn’t been that high, an extremely rare change.
Selling short positions has already caused prices to rise. In simplified terms, short products work on the principle of a short buy, only one bank manages the process: The short seller borrows the documents for a certain period – in this case a Dax certificate or a Dax ETF – for a fee and then sells them. If the price falls, your speculation pays off – you can buy back the card at a lower price and return it to the lender. The difference between the sell and buy back price is your profit.
This is why high short positions ultimately limit further losses when prices fall and reinforce the upward trend when prices rise. In the first case they take profits, in the second case the professionals have to sell so that the losses do not become too high.
2. Investors are afraid of losing a rally
The assessment of the Frankfurt Stock Exchange Investor Survey also provides an interesting picture. According to the current vote, behavioral economist Joachim Goldberg identified a greater fear of “losing the next stock market rally than of the possible negative effects of an unclear US election outcome.” Zone seems to have gotten used to it.
The current optimism of institutional investors is as high as on 28 November 2018. According to sentiment theory, such a high level of optimism is a counter-indicator that tends to signal a drop in prices.
A look back at December 2018 supports the theory: after a miserable 2018 trading year, investors had at least hoped for a year-end rally and consequently bought in late November. But things turned out differently: with a performance of about minus eight percent, this December was one of the most miserable closing months in the entire history of the stock market.
3. The sale took place before the election
The fact that the markets have experienced a significant recovery after the US elections is also due to a simple reason: Even before the vote was cast, prices dropped significantly, there were again entry level courses at affordable prices. The Dax lost about 15 percent from the beginning of September to the end of October, the US S&P 500 selection index also about ten percent.
The reasons for this varied by stock exchange: foreign investors in particular exited the German stock market, as can be seen by the euro versus dollar exchange rate which fell during this period. Less than about five percent during this period shows how high the capital outflow must have been.
“Even strong crises like Corona are quickly digested by the stock exchanges”
Furthermore, the corona pandemic is keeping much of Europe firmly in check. But does any foreign investor know that Germany is less affected by this crisis than many other European countries?
The slide on US stocks, on the other hand, was simply overdue, to put it simply. In the United States, the economy is booming despite the high number of infections.
Such major stock market corrections are necessary after a month of rallying as in the summer and are considered healthy from a technical standpoint. During this time, tech stocks were mainly sold, which, interestingly, are now again a favorite on exchanges. Shares of Apple, Amazon and Facebook rose up to nine percent on Wednesday.
These first two points suggest that the Dax rally may soon end suddenly. The rationale behind it: home investors have already bought, who should follow? For Joachim Goldberg, these could only be long-term foreign capital inflows that could prevent a major sell-off in the event of a price drop. It appears to be so on Thursday, as the euro is growing significantly.
At the same time, he suspects that the new optimists would likely start making their profits in the 12,300 / 12,350 area if prices continued to rise.
The technical analysis, however, shows a completely different picture: With the leap over the 12,200 point mark, this image lit up. “Overall, Wednesday’s trading day is therefore a big step forward in terms of the year-end rally that is still beginning,” Bank HSBC analysts say. At the latest with a slide below the 200-day line, which is currently 12,075 meters, this picture is likely to change again permanently.
Look at the individual values
Munich Re: The world’s largest reinsurer dares not make earnings forecasts two months before the end of the year ahead of the krona pandemic. The company justified this Thursday with “persistently high uncertainties regarding the further macroeconomic and financial effects of Covid-19”. This causes the share to drop by around 3.5% and the document tops Dax’s list of losers.
Commerzbank: The impending loan defaults in the crown crisis and the costs of restructuring the group are affecting Commerzbank. In the third quarter, the institute recorded a loss of 69 million euros, after a profit of 297 million euros in the same period last year. The institution fared slightly worse than analysts predicted.
The second largest private bank in Germany also confirmed that it expects red numbers for the full year for the first time since 2012. The share falls by around six percent.
Infineon: With a price increase of nearly 3.4 percent, the shares are among the DAX’s biggest winners. Credit Suisse experts have raised their target price to 22.50 from 19.20 euros.
See other asset classes
The gold price is picking up speed and stands at $ 1917, up 0.7%. A weaker dollar and falling bond yields provide favorable winds. The US presidential election has lost its horror, Commerzbank commodity analysts say.
Your scenario: The emerging majority of Republicans in the US Senate have significantly reduced the prospect of a broad stimulus package. The Fed may need to intervene. Fed chairman Jerome Powell could give guidance on this following Thursday night’s central bankers meeting.
The Bank of England unveiled this Thursday and announced further stimulus measures. He wants to increase his bond purchase program from £ 150bn to £ 895bn.
“The ECB is expected to follow in December,” expects Carsten Fritsch from Commerzbank. “The continuing ultra-expansionary monetary policy of the central banks speaks of a further increase in the prices of precious metals”.
What the graph technique says
With the leap above the 12,200 mark, the picture on the stock market has cleared significantly. This level was the lower limit of a month-long sideways range that was broken down in late October. Now the Dax is again trading in this side range, the top mark of which is around 13,400 points.
There are also other major brands at around 12,200 meters, such as the 200-day line, that long-term investors pay attention to. This line is currently trading at 12,075 meters, making it the last most important support it needs to hold.
The next upside target was reached on Thursday and is seen as a sign of strength. It was the downward price gap on October 26 that closed. These gaps occur when the low point of a trading day (12.515 in this case) is higher than the next day’s high price (12.405 in this case). Such price gaps are like a market reassessment because no trading has taken place in this area.
Here go to the page with the Dax course, here you can find the current tops and flops in the Dax.
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