March 11, 2020
Yesterday, equity sentiment as measured by the CBOE equity put/call ratio reached bearish extremes. Other sentiment indicators have flashed similar contrarian buy signals, while we wait on tomorrow’s weekly AAII survey data for confirmation. Positioning indicators also flash buy signals with equity-bond mutual fund flows reaching 12-month extremes. Yesterday’s gain in the SPX probably surpassed levels market technicians consider a day-one set-up for a two-day reversal but we lean toward adding broad equity exposure given stretched sentiment and positioning indicators.