Complacency in a Crowded Trade ~ The Risk Averse Alert

Monday, April 11, 2011

Complacency in a Crowded Trade

Well, it appears the town was painted red today with a nice, thick coat of complacency...


Seeing the CBOE Put/Call Ratio rising 9% is more than mildly curious when the price for such protection, rather than increasing with the market's weakness, instead was falling...


And fairly sharply at that. Yet whether this measure of complacency will lead to but more of the same before the lug nuts fall off this bull trap is at this point, of course, a rather natural suspicion.

Still, fearlessness displayed here is fitting a market believed on the verge of collapse. All the more conspicuous, though, is this complacency following Friday's whipsaw (whose high and low set the high and low mark for the entire week)...

NYSE 5-min

One rather large CME jam gone bad was Friday. Just how little buying interest existed was starkly revealed just prior to the final hour's save: one whose follow-through this morning brought only further weakness, the likes of which found each new low today confirmed by still weaker relative strength.

So, might complacency be badly misplaced here? It rather appears so.

Then what might a bull counting on some manageable measure of inflation be missing?

Let your thinking begin with the poll cited at the conclusion of "A Bear Case Made in an Animal Spirits Graveyard."

Per "the best investment going forward this year," we had the inflation trade (stocks + commodities) at 77% and the deflation trade (bonds + cash) at 22%.

Mr. Dremon's, no doubt, is the crowded trade. Yet matters go from bad to worse when you add to the mix physical breakdown induced by wild swings from debt collapse to hyperinflationary bailout. The 1970s "stagflation" will prove paradise in comparison.

Fast Money
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