So he had read the sign - or at least nutted out enough of it to understand something - yet he insists he can't read. He will insist he can't read words like cat and dog.
He can do addition with counters, but he will guess wildly instead.
When my son was a little younger than yours, he also denied that he could read, despite evidence to the contrary - turns out he was horribly afraid that we would stop reading books aloud with him if we knew. Once we convinced him that we would still read together, he loosened up about it. (We kept the promise, BTW, and still read books aloud together as a family - my son is now 14!)
Another thing to think about is that lots of gifted kids
really dislike being asked to demonstrate their knowledge just to "prove" that they know something or can do something. If your child can count, and has shown you this before, he may "guess wildly" because he is feeling insulted that you think he can't, or feeling resistant to be being asked to "perform", or because he thinks it is funny to give an obviously ridiculous answer. We found that playing games that required counting and/or addition and subtraction for success (like Blackjack, backgammon, etc.) were great ways to practice these skills without hitting that resistance.