Washed-Out Readings, Crowded Shorts, and a Wall of Bullish Stats
The S&P 500 is sitting on a pile of contradictions. Sentiment has collapsed to Liberation Day lows, breadth has deteriorated sharply, and credit spreads are flashing a warning that has preceded bear markets in the past. Yet the statistical record from these exact conditions is overwhelmingly positive on a 6-to-12-month horizon, with multiple independent signals printing 85-100% win rates with double-digit average returns. In crypto, Bitcoin’s Pi Cycle low indicator just triggered for only the fourth time in history, and COT positioning is stretched to extremes that previously aligned with major bottoms. The question this week isn’t whether things feel bad. They do. The question is whether that feeling, quantified across a dozen independent measures, is the signal itself.
1. Equities: The Statistical Case for a Bottom
Sentiment at extremes, breadth washed out, and the forward stats are stacking
S&P 500 (Daily Sentiment Index at 22)
The S&P 500’s Daily Sentiment Index dropped to 22, the lowest reading since last April’s crash. Similar depressed readings have consistently appeared near local bottoms for the index.
Nasdaq (Daily Sentiment Index at 25)
Nasdaq’s Daily Sentiment Index fell to 25, matching its lowest level since Liberation Day. Historically, readings this low have coincided with the bottoms of pullbacks and corrections.
S&P 500 (Only 21% of Stocks Above 50-DMA)
For the first time in over 11 months, only 21% of S&P 500 stocks are above their 50-day moving average. 12 months later, the S&P 500 was 93% positive with an average return of nearly +12%.
S&P 500 Financials (0% Above 50-DMA)
An even more extreme reading: 0% of S&P 500 Financial stocks are above their 50-day moving average. 12 months later, the S&P 500 was 85% positive with an average return of +21%.
Nasdaq (Down 9 of Past 10 Weeks)
The Nasdaq has fallen in 9 of its past 10 weeks, a rare streak of persistent selling. 12 months later, the Nasdaq was 100% positive with an average return of +32%.
S&P 500 (200-DMA Break After 200+ Days Above)
The S&P 500 lost its 200-day moving average after holding above it for 200+ days. Since 1950, this has typically led to consolidation rather than a deep bear market. The S&P 500 gained an average of +8.3% over the next year.
S&P 500 (Break Below 200-DMA With Continued Weakness)
After holding above for 3+ months, the S&P 500 broke its 200-day average and continued moving lower over the following week. 6 months later, the S&P 500 was 100% positive with an average gain of +15%.
S&P 500 (Daily Return Over +2.5% on March 31)
The S&P 500 posted a daily return of over +2.5% on March 31. In past instances of moves this large, the average return 6 months later was +18%.
Nasdaq 100 (100 Sessions Off Peak, Less Than 10% Decline)
March 25 marked 100 sessions since the Nasdaq 100 peaked, yet QQQ wasn’t even 10% off its high. When the Nasdaq has been less than 10% down at the 100-session mark, it was 100% positive 12 months later with an average return of +17%. When deeper than 10%, the 12-month win rate dropped to 64% with a +10% average.
Section 1 Summary
The breadth and sentiment data paint a picture of a market that is deeply washed out. Nearly every quantified signal in this section carries an 85-100% win rate on a 6-to-12-month horizon with double-digit average returns. The weight of evidence points firmly toward recovery, though the timeline for a bottom to form remains the open variable.
2. Positioning, Hedging, and the Squeeze Setup
Extreme put buying, CTA shorts, and low cash levels create a coiled spring with a caveat
S&P 500 (Total Put/Call Ratio at 1.12)
The S&P 500 Total Put/Call Ratio spiked to 1.12. 2 months later, the S&P 500 was 100% positive with an average return of +10%.
S&P 500 (Equity Put/Call Ratio at 0.86)
The equity put/call ratio spiked to 0.86. 1 month later, the S&P 500 was 90% positive with an average return of +3%.
S&P 500 (SPY Put Volume Spike)
SPY put volume spiked on Friday, another expression of acute hedging demand. 3 months later, the S&P 500 was 100% positive with an average return of +14%.
S&P 500 (SPY Volume at Highest Since November Bottom)
SPY volume jumped to its highest level since last November’s bottom, the kind of capitulation-level activity that often marks local turning points.
S&P 500 (CTA Positioning: $35B Net Short)
CTAs are now massively short, approximately $35B, very close to the Liberation Day low when CTA shorts reached the 99th percentile at $50B. These levels have generally marked bottoms and fueled sharp squeezes as CTAs flip to buyers and chase price upward. Right tail risk is exposed.
S&P 500 (AAII Cash Allocations at 4-Year Low)
Cash allocations in the AAII Sentiment Survey fell to 14.19%, the lowest in 4 years. This has occurred only 3 times in the past 20 years: late 2017, January 2020, and late 2021. Each case preceded significant market volatility and losses. This is the main contrarian bearish data point in the set.
S&P 500 (Credit Spreads Blowing Out Without Deep Drawdown)
Over the past 20 years, when credit spreads blew out but the S&P 500 hadn’t yet declined beyond pullback territory, the outcome was a bear market in 3 out of 3 cases. This is the most explicitly bearish signal in this week’s data.
Section 2 Summary
The hedging and put/call data overwhelmingly favor a bottom, with 90-100% win rates across multiple timeframes. However, two signals push back: record-low cash allocations have preceded every major volatility event of the past two decades, and credit spreads blowing out at this stage have been 3-for-3 in preceding bear markets. The squeeze setup is real, but so is the credit warning.
3. Seasonal and Structural Context
Historical patterns, cycle positioning, and the macro divergence from 2008
S&P 500 (Bull Market Year Four)
The current bull market is in its fourth year, which has historically been quite strong. The S&P 500 is 85% positive with an average return of +14% in year-four bull markets, assuming the bull market doesn’t end with a 20% decline.
S&P 500 (Second-Term President Year Two)
Under second-term U.S. presidents, the S&P 500 tends to average nearly +9% returns in year two. This provides a favorable seasonal tailwind for the current period.
S&P 500 (Midterm Year Drawdowns and Recoveries)
The median midterm year drawdown is 15.6% (S&P 500, 1950-2022). That’s the bad news. The good news: off the midterm year low, stocks have never been lower a year later and the S&P 500 is up nearly +32% on average.
S&P 500 / Macro (2026 vs. 2008 Divergence)
Tom McClellan highlights two critical differences between 2026 and 2008: the Fed was doing QT in 2008 versus QE5 now, and there was a bearish divergence in the Advance-Decline Line before the 2008 decline that is absent today. The structural backdrop is fundamentally different.
S&P 500 (Trump Negotiation Framework / Deescalation Signal)
The Kobeissi Letter outlines a Trump negotiation framework that appears to be playing out similarly to the Liberation Day episode, suggesting deescalation could come sooner rather than later and trigger a return to risk-on positioning.
S&P 500 (Deutsche Bank Trump Pressure Index)
Deutsche Bank has developed an index combining approval ratings, inflation expectations, S&P 500 performance, and T-bill yields that has proven effective in predicting major Trump policy pivots. The index is reportedly elevated, increasing the odds of a concession or pivot.
Section 3 Summary
The seasonal and structural overlay is largely supportive. Bull market year-four stats, midterm year recovery patterns, and second-term presidential returns all lean bullish. The 2008 comparison, which is driving much of the bearish narrative, falls apart on the key structural measures of Fed policy and breadth divergence. The Trump deescalation signals add a potential near-term catalyst.
4. Crypto: Pi Cycle Low, COT Extremes, and Altcoin Rotation Setup
Rare signals triggering alongside stretched positioning and a manufacturing-driven altcoin catalyst
Bitcoin (Pi Cycle Low Trigger)
Bitcoin’s Pi Cycle low indicator just fired for only the fourth time in history, with prior signals near the bear market lows in January 2015, December 2018, and June 2022. 1 year later, Bitcoin was 100% positive with a median return of +58%.
Bitcoin Futures (COT Extremes: Commercials Net-Short, Large Specs Net-Long)
Commercials are extremely net-short Bitcoin while Large Speculators are extremely net-long. This kind of extreme positioning historically aligned with bottoms, as seen in 2023 and 2025.
Bitcoin Futures (Large Speculators Extremely Net-Long)
Large Speculators are at extreme net-long levels in Bitcoin futures, a positioning extreme last seen in 2023 before Bitcoin rallied.
Altcoins / OTHERS (Z-Score Washout + US PMI Crossover)
OTHERS/BTC Market Cap vs US PMI chart shows that Z-scores for small-cap altcoin outperformance against Bitcoin have been washed out since 2023, tracking alongside weak US PMI readings. With US PMI now crossing above 50 in alignment with the Manufacturing Recovery Signal, this setup suggests a period of small-cap altcoin outperformance should follow in the coming months. Prior Z-score recoveries from similarly depressed levels coincided with the 2017 and 2021 alt seasons.
Bitcoin (ISM PMI Expansion and Parabolic Moves)
Sminston With maps ISM PMI alongside Bitcoin’s price and its power law trend, showing that Bitcoin’s parabolic moves have historically coincided with US PMI crossing into expansion territory above 50. With PMI now turning higher, this framework suggests the macro backdrop is aligning with the conditions that preceded prior Bitcoin blow-off rallies. The power law fit carries an R² of 0.9613, reinforcing the long-term structural trend (no forward stats provided).
Section 4 Summary
Bitcoin’s signal set this week is anchored by the Pi Cycle low, one of the cleanest binary indicators in crypto with a perfect 3-for-3 track record at major lows. COT positioning from two independent sources confirms the same bottoming thesis. The PMI theme ties the crypto case together: both Bitcoin’s parabolic move history and altcoin rotation Z-scores align with manufacturing expansion crossing above 50, a condition that is now triggering. The forward stats on BTC are among the strongest in the entire newsletter; the altcoin and PMI cases are analog-driven but structurally compelling when viewed alongside the quantified signals.
Closing Summary
The weight of evidence this week is heavily skewed toward recovery. Across equities, nearly every breadth, sentiment, and positioning signal is printing with 85-100% win rates on a 6-to-12-month basis. Seasonal patterns, structural macro differences from 2008, and potential policy de-escalation provide additional tailwinds. In Bitcoin, the Pi Cycle low is a rare and historically reliable bottoming indicator. The two main risks are explicit: credit spreads blowing out without a deep drawdown has been 3-for-3 in bear markets, and record-low cash allocations have preceded every major volatility event of the past two decades. The base case favors a dip-then-rip, but the credit signal demands respect.
Indicator Summary Table
| Instrument | Indicator Name | Insight | Source Link |
|---|---|---|---|
| Altcoins / OTHERS | Z-Score washout + US PMI crossover | Z-scores washed out since 2023; PMI crossing above 50; prior recoveries aligned with 2017 and 2021 alt seasons | Altcoin Screener |
| Bitcoin | ISM PMI expansion and parabolic moves | Parabolic BTC moves coincide with PMI crossing above 50; power law R² = 0.9613 | Source Link |
| Bitcoin | Pi Cycle low trigger | 100% positive 1Y later; +58% median return (4th signal in history) | Source Link |
| Bitcoin Futures | COT extremes: Commercials net-short, Large Specs net-long | Aligned with bottoms in 2023 and 2025 | Source Link |
| Bitcoin Futures | Large Speculators extremely net-long | Last seen in 2023 before rally | Source Link |
| Nasdaq | Daily Sentiment Index at 25 | Lowest since Liberation Day; coincided with pullback/correction bottoms | Source Link |
| Nasdaq | Down 9 of past 10 weeks | 100% positive 1Y later; +32% average return | Source Link |
| Nasdaq 100 | 100 sessions off peak, less than 10% decline | 100% positive 1Y later; +17% avg (vs 64% / +10% when >10% down) | Source Link |
| S&P 500 | 200-DMA break after 200+ days above | Avg +8.3% over next year since 1950 | Source Link |
| S&P 500 | AAII cash allocations at 4-year low | 14.19% cash; preceded volatility in late-2017, Jan 2020, late-2021 | Source Link |
| S&P 500 | Break below 200-DMA with continued weakness | 100% positive 6M later; +15% avg | Source Link |
| S&P 500 | Bull market year four | 85% positive; +14% avg return | Source Link |
| S&P 500 | CTA positioning: $35B net short | Near 99th percentile Liberation Day levels; squeeze fuel | Source Link |
| S&P 500 | Credit spreads blowout without deep drawdown | 3-for-3 in bear markets over past 20 years | Source Link |
| S&P 500 | Daily Sentiment Index at 22 | Lowest since April crash; near prior bottoms | Source Link |
| S&P 500 | Daily return over +2.5% (March 31) | Avg return +18% six months later | Source Link |
| S&P 500 | Deutsche Bank Trump Pressure Index | Elevated reading; predicts policy pivot | Source Link |
| S&P 500 | Equity put/call ratio at 0.86 | 90% positive 1M later; +3% avg return | Source Link |
| S&P 500 | Midterm year drawdowns and recoveries | Median drawdown 15.6%; never lower 1Y off the low; +32% avg | Source Link |
| S&P 500 | Only 21% of stocks above 50-DMA | 93% positive 1Y later; +12% avg return | Source Link |
| S&P 500 | SPY put volume spike | 100% positive 3M later; +14% avg return | Source Link |
| S&P 500 | SPY volume at highest since November bottom | Capitulation-level volume | Source Link |
| S&P 500 | Second-term president year two | ~+9% avg return | Source Link |
| S&P 500 | Total Put/Call Ratio at 1.12 | 100% positive 2M later; +10% avg return | Source Link |
| S&P 500 | Trump negotiation framework / deescalation | Liberation Day analog suggests pivot coming | Source Link |
| S&P 500 / Macro | 2026 vs. 2008 divergence | Fed doing QE5 (not QT); no A-D Line bearish divergence | Source Link |
| S&P 500 Financials | 0% above 50-DMA | 85% positive 1Y later; +21% avg return | Source Link |
Large Caps
Bitcoin Update
Not much has changed for Bitcoin since the last newsletter. It is in the middle of the range. If it can reclaim $80,000 on the weekly timeframe, it would be progress towards forming a low. Then the next thing to look for is Bitcoin to go above $100,000 to form a higher high. Even if Bitcoin still is stuck below $80,000, there’s a very high chance that Bitcoin holds above this green area of $50,000 to $72,000. Based on the evidence looking at Bitcoin’s price action along with other asset behavior and the macro backdrop, this is most likely a mid-cycle bear market similar to March 2020 and April 2021 when Bitcoin and crypto had similar +50% drops but still managed to make new all-time highs.
Ethereum Update
Ethereum is in a similar situation of being in the middle of its range. I would like to see it reclaim $2700 to confirm any continued upside.
Solana Update
Solana is in a similar situation of being in the middle of the range. I want to see it reclaim $120 on the weekly timeframe to flip bullish.
Sui Update
Sui is going sideways between 0.80-1.00. I would like to see it get above $1.40 to flip bullish.
Dogecoin Update
Dogecoin is continuing to hold $0.09 as critical support. I think there’s a strong chance it continues to hold this and I would like to see it reclaim $0.12 to see any bullish continuation.
Pepe Update
Pepe is still managing to hold above its bottom range for now but if it loses this then I expect a major drop from here.
Altcoin Screener Pro Update: Triple Signal Confluence and Financial Breadth Washout
I shared an update in the last newsletter on the Triple Signal Confluence thesis and why the data favors a bullish outcome despite the rampant doom and gloom on X and elsewhere. On March 27, 2026, a rare breadth indicator triggered: 0% of S&P 500 financial sector stocks were trading above their 50-day moving average. This extreme washout has occurred only 15 times since 1990, making it one of the most infrequent breadth signals in the market’s toolkit. The most recent prior instance was May 2022. Critically, the signal also fired on November 18, 1993—which is already the closest analog date in the Financial Sector Divergence signal analysis from the core Triple Signal Confluence research.
This addendum integrates Signal 4 into the existing framework and assesses whether it confirms, contradicts, or refines the thesis.
Deep Dive Research Paper
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