Last week we said, “There is nothing bearish about this market and, from a contrarian point of view, that’s a concern.

The markets are still in uptrends on the daily, weekly, and monthly charts but are short-term overbought with bearish sentiment and deteriorating breadth.  The put call ratio is showing too much euphoria, which is a big warning sign to us.”

We warned in last week’s letter not to get complacent.  That was great advice as the markets sold old off Friday on news of the expanding threat of the coronavirus, among other things.  The S&P 500 and Dow had their biggest one-week drop since last August.

This time, with our sentiment gauge at such a bearish extreme and breadth — which I have been reporting has been deteriorating for some time — historically supports the probability that a larger correction is at hand.


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