First signs of life not yet convincing

The year 2022 has so far presented itself as a particularly difficult year. It is especially characterized by justified pessimism. As wrong as it may sound, this is a rare situation. As a rule, market participants react too extremely to both good and bad news. We humans tend to focus on the best or worst case and therefore regularly exaggerate with our reaction.

This year, however, is actually proceeding largely according to the worst-case scenario. The war in Ukraine and the resulting geopolitical tensions are dragging on in a war of attrition. This also includes Western sanctions policy in an attempt to stop Russia and be the first to lose the war of attrition. This burdens the global economy and primarily, of course, Europe and America.

At the same time, we are struggling with extreme inflation rates that deny central banks the leeway to counteract the economic surprising problems with more expansive monetary policy. On the contrary, central banks are forced to make an extreme turn to the restrictive side of monetary policy, in the middle of a unique storm on established market structures. Accordingly, the market could not sustainably implement any strength.

Sentiment has been at historical lows for months, which is why the odds were heavily shifted toward an upward movement. In April, we ultimately had to pull the ripcord after the bad news did not stop and the sentiment situation had not been sufficient to support the market. Ultimately, as noted at the beginning, market participants are extremely negatively positioned. But the real situation is continuously equally negative and no surprising positive news has yet been identified.

A week ago, parts of the sentiment indicators had entered a new negative record zone. That was certainly one of the core factors for the recovery rally of last week. Now, however, sentiment has become drastically more positive again and this catalyst has temporarily disappeared. Despite all the bad news and basic sentiment, we have not yet seen a capitulation event in the markets. The first two weeks of June showed real fear for the first time, but were not enough to speak of a capitulation from which a strong turnaround should emerge.

In short: Last week's rally shows many signs of a temporary counter-movement. For a sustainable bottom, a selloff with a tendency toward a double-digit loss day is still missing. It would be very desirable to get such a panic event. A more extended counter-rally would make a multi-year bear market with price targets up to 2,000 points in the S&P 500 likely. The nicer scenario is certainly an imminent panic moment. Nice target areas are the 3,500 and 3,200 points regions in the S&P 500. For the Dax, the areas of 12,300 points and 11,500 points are interesting.