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Morning Notes — Risk Skewed to the Upside

Risk Skewed to the Upside

March 12, 2020

Today’s release of the weekly AAII US Investor survey resulted in bearish sentiment reaching 51.31, which exceeds the extreme levels of 50.4 from 12/27/18. Recall on Monday, the CBOE Equity Put/Call ratio reached 1.12, just 2bps from its all-time record high of 1.14 from 12/21/18. The American Association of Individual Investors measures sentiment of a highly emotional investor class. Option investors are also considered emotional, which makes them wrong at extremes. We’ve officially reached bearish extremes and de-risked equity markets to a great extent. But before adding broad equity exposure, we’ll wait for price trend deceleration and signs of seller exhaustion. Note the cumulative advance/decline line for the S&P 500 failed to make a new low yesterday. Today’s close is important.

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