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Oversold Contrary Sentiment Metrics

Sentiment looks like it’s getting negative enough to support
a rally – at least in the near term back up near recent highs. Two sentiment indicators
we follow show bearish/negative sentiment encroaching on levels and signals that
would be supportive of this rally. We will need to see some technical
confirmation with the indexes rallying through the resistance levels and the
200-day moving average we highlighted
two weeks
ago for starters.

Larry McMillan who runs The Option Strategist newsletter
has two 21-Day Put/Cal Ratios (charts above) that are nearly off the charts
oversold. In his February 4 newsletter he states, “Equity-only put-call ratios
remain in extremely oversold territory (that is, very high on their charts in Figures
2 and 3), but they have not yet rolled over to buy signals.”

According John Gray’s Investor’s Intelligence Advisors
Sentiment survey Bullish advisors remain relatively low at 35.7%. Correction
advisors rose again and are the largest group for two weeks in a row at 39.3% its
highest count since March 2020. Bearish advisors have been on the rise for
months at but fell back to 25.0% after hitting 26.7% the week before as of
their February 2 release. Mr. Gray notes that “A broad buying opportunity is
generally signaled a high level of long-term bears, instead of the correction
group. They have a short term outlook.”

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