The Founder’s Group just closed its position in the NASDAQ 100 at 13870.50. My concern is the extreme complacency developed in the past 24 hours – most notably reflected in the put/call ratio. It is at the lowest end of its year-long Pandemic range. 

Typically, the indicator is not as good at picking tops as picking troughs. Still, the current level is exceptionally low today, indicating a disturbing sense of security in all that we see. Every time the ratio hit these levels in the past year, the market topped – at least short term. If a double top does develop, it will seem obvious (in 20/20 hindsight).

Also, we got out as the afternoon drive rolled over at a lower peak than this morning. Sell in the morning / buy in the afternoon is fine. Sell in the morning, sell in the afternoon is not so fine.

Tomorrow, we get the inflation numbers. While there is likely to be no surprise, it may nevertheless be a catalyst for what happens next. I am acting out of a superabundance of caution in making this decision this afternoon. The risk here warrants a more vigilant,  protective strategy.  Also worth noting is the VIX volatility (fear) index hit its lowest level in a year yesterday at 15.15. While the crowd is not giddy, they may well be asleep at the wheel. With the SKEW at record levels as well, tail risk is as high as its been recently.

This decision does not negate any of my previous comments. Likely, the market will break out here. But we had a nice profit in our NASDAQ 100 position, and I can always re-enter.

Sometimes, the return of our capital can be just as significant as the return on our money. Tomorrow may be one of those moments. Again, the odds still favor the break higher. Nevertheless, I am always willing to look dumb as long as I lock in a profit.

Another possibility is that the inflation reports drive a rally that the professionals use to liquidate their positions. Keep that in mind as well – kind of the bull trap I have been mentioning. 

Tomorrow promises to be exciting – assuming we are on the right side of it.

A.F. Thornton