Dusseldorf The Dax can stop the free fall. In morning trading, the leading German index up 0.7 percent and is traded at 9,229 points. However, the daily high is 9,500 points, an increase of more than five percent, far from it.
Yesterday Thursday, the Dax benchmark index had lost 12.2 percent and had dropped below the 10,000 point mark for the first time since 2016. In the end, he recorded 9161 points. It was the second largest daily loss in the history of the Dax. It was only on October 16, 1989 that the drop was larger at 12.8 percent.
Also the Balance of the individual values had historical dimensions on Thursday: 23 out of 30 titles had a double-digit percentage decrease, six of them lost more than 17 percent. Things look different today, at least at the start of trading: All 30 values were positive at the start of trading. There are now 25 titles.
After yesterday’s high losses on the US stock markets with a minus sign of more than nine percent the Dax is very robust. The Asian stock exchanges fell significantly, but the Chinese indices fell only a little over one percent. Because in the Middle Kingdom, the corona crisis will probably soon be over.
There is news from the European central bank: Philip Lane, chief economist at the ECB, made clear in a blog entry on the central bank’s homepage on Friday that he and his colleagues on the Governing Council wanted to continue to intervene in the event of turmoil in the government bond market. This clarification was necessary because ECB President Christine Lagarde had made the risk premiums of Italian government bonds soaring the day before with an awkward statement. It corrected itself afterwards in an interview with the broadcaster CNBC, but this did not calm the markets consistently.
As part of a detailed presentation of Thursday’s ECB decisions, Lane writes: “The role of our purchase program – in terms of both government bonds and corporate bonds – is particularly important in situations in which investors want to get to safety across all asset classes, namely on the basis of movement patterns, according to which some securities are considered “safe havens” and therefore gain value when the markets shy away from risks. ”
In short: The ECB makes targeted purchases in order to absorb high risk premiums in panic situations – for example, bonds from certain countries. That was exactly what Lagarde had denied the day before during the ECB meeting. Lane also made it clear that in such cases the ECB can deviate from the so-called capital key, i.e. the weighting of purchases according to the economic size and population of the euro countries. The only decisive factor is that these proportions are preserved in the total portfolio of bonds – including those from previous purchases. Lane returns to an earlier interpretation of the rules. A statement by Lagarde, on the other hand, could at least be understood as if the additional purchase program of 120 billion euros decided on Thursday should be balanced by the end of the year.
The Dax is currently experiencing the fastest crash in its history, so it’s worthwhile for investors to look at the previous crashes. Especially the comparison with the financial crisis It’s worth it because in both 2008 and 2020, stock prices had risen faster for years than companies managed to increase profits.
Since the Dax is a performance index that includes dividends, the chart of the Dax price index offers better support without dividends.
The comparison: the price index reached its record high of 5,282 points at the end of 2007, before falling more than 55 percent to 2,258 points. Transferred to the current situation, this stock market barometer has further downside potential without dividends. So far, the minus is “only” around 32 percent.
The price index has so far dropped from 6136 points to 4062 points. In contrast to the financial crisis, what is completely missing so far are interim recovery phases. Perhaps the current trading day will change this situation.
And like in the financial crisis, investors should keep an eye on banks’ prices. Because since the beginning of the year, the Stoxx 600 banks has collapsed more than a third. This Friday, however, it is time to relax again: Deutsche Bank shares are up 1.6 percent, Commerzbank stocks are even increasing by more than three percent. Yesterday Thursday, Commerzbank and Deutsche Bank shares slid to new record lows.
A worrying fact is that in the past few days the Credit default insurance, so-called credit default swaps (CDS), is skyrocketing have: Today they signal an increasing likelihood that the capital cushion built up in recent years will not be sufficient to bring all banks without a capital squeeze through a potentially drastic corona crisis.
So this value rose at Deutsche Bank from the end of February to currently from 99 to 125, at Commerzbank from 22 to 99. A CDS value of 125 means that investors who want to protect themselves from bank defaults pay 1.25 percent annually as insurance sum.
On two Southern European stock exchanges are banned against a crash continuation. In response to the sharp drop in prices, Italy’s financial market regulator Consob has banned short sales of 85 companies’ shares after prices on the Milan Stock Exchange plummeted 17 percent. This affects above all the bank titles. The ban applies to this Friday.
Short sales of 69 shares were also banned in Spain to prevent the mass sales of these companies’ securities. The ban applies to all paper that yielded more than ten percent on Thursday and all illiquid stocks that fell by more than 20 percent. The Spanish stock market index IBEX fell over 14 percent on Thursday, the largest loss ever measured in one day.
Despite the turbulence on the stock exchange, Deutsche Börse does not want to impose a short sale ban. One does not take such a step, said a group spokesman on Friday. After the collapse of the stock markets on Thursday, speculation had arisen that short sales could also be prohibited in Germany.
With short sales, investors bet on a drop in the price of a share. In doing so, they sell securities that they borrow beforehand for a fee. If the price drops by the return date, they can stock up on the titles more cheaply and cross in the difference. However, if the price rises, the short sellers are at risk of losing.
Look at other asset classes
The yield on the bond market increases significantly at the start of trading. In the case of German government bonds, this is now minus 0.636 percent after minus 0.680 percent at the start of trading.
The oil price is heading for the largest weekly drop since 2008. However, things are picking up again today after the American retaliatory attack on an Iraqi militia. A barrel (159 liters) of the North Sea variety Brent costs $ 34.44. That was 1.12 cents more than the previous day. The price of a barrel of the US grade WTI increases by $ 1.12 to $ 32.66.
There is a rapid up and down in the cyber currency Bitocin. After a minus of twelve percent in the early morning, the cryptocurrency rose again by 11.5 percent to around $ 5,400.
Look at the individual values
Wirecard: The company has published a preliminary version of the KPMG special audit, which is intended to clarify the numerous allegations that the group has faced in recent months. As of now, however, this provides only limited information about the accounting methods at Wirecard. The stock lost 17.9 percent yesterday, today it was almost 30 percent higher at the start of trading. In the meantime, however, the increase in value is only around eight percent.
Roche: The FDA has temporarily approved a test by the Swiss pharmaceutical company Roche to detect the Sars-CoV-2 virus as part of an emergency determination. Roche wants to push its capacity limits so that millions of tests can be made available to hospitals and laboratories in the United States and, in some cases, in Europe. A single test system delivers results of up to 4128 samples within 24 hours. The share gains more than six percent on the German stock market.
What the chart technique says
In the past 16 trading days, the German stock index has dropped 14 times with a minus. The stock barometer is still far from stabilizing. Chart technology and fundamental reasons are currently irrelevant to investors. Gregor Bauer, independent portfolio manager and chairman of the Association of Technical Analysts in Germany, says: “This is a sign of panic, as is the phenomenon that investors hardly differentiate between industries or companies in their sales. There is still no end in sight to the sell-out ”.
In terms of charts, we have a bear market as the major indices are now more than 20 percent below their all-time highs. In crisis mode, the low of February 2016 at 8,699 points defines the next retreat line. To take the most pressure off the Dax, you need at least one trading day without a new low or even a day with a plus sign.
Here is the page with the Dax course, here are the current tops & flops in the Dax. Current short sales by investors can be found in our short sales database.
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