Source: Bank of America Merrill Lynch
Source: Bank of America Merrill Lynch

Stephen Suttmeier, a technical research analyst at Bank of America Merrill Lynch, yesterday sent out a note regarding sentiment readings (See the chart above). The ratio of bulls to bears, as measured by the American Association of Individual Investors, has fallen sharply, to a level that, according to Suttmeier, “supports a tactical rally.”

He writes:

The American Association of Individual Investors (AAII) Bulls vs. Bears ratio is nearly as oversold as it was at the February low. The 0.79 reading is below 1.0 and a tactical contrarian bullish (oversold) reading for individual investor sentiment. This supports the case for a tactical rally (see Chart Blast: Bulls make a stand & set up a tactical rally for US equities 16 April 2014). In our view, the drop in the NASDAQ is the trigger for this oversold AAII Bulls/Bears reading.

No chart tomorrow -- enjoy the three-day weekend!

To contact the author of this article: Barry Ritholtz at britholtz3@bloomberg.net.

To contact the editor responsible for this article: Alex Bruns at abruns@bloomberg.net.