Date: February 28, 2024

Complacency Rises – People Getting Giddy, Cocky & Greedy

The markets sure have gone quiet or so it seems. Let’s take a look at the Volatility Index (VIX) below. While stocks have marched steadily higher since the October bottom, the VIX tells a slightly different story as it fell into December and then mildly rallied since. I would have expected the VIX to be below 12.

Does that matter? Not really, especially not in the short-term. It is just telling us that the options trades are expecting a bit more movement going forward than they did during the seasonally quiet period of December.

I sense complacency has been and is building more and more. People push back at my theme of pruning winners and planting into losers. Since Monday as you can see below in our trades, we trimmed more technology and bought more consumer products. For full disclosure, when we added to Tesla in early February, it was always going to be a short-term trade. I was either wrong and we would get stopped out below $175 or it was going to work and the stock would rally towards $206 where I planned on lightening up. We still maintain a position, but only half size.

See how my thesis unfolds? I am in a rent don’t own phase now where I was all about owning in size with leverage since September 2022. I don’t hate the stock market, but it’s had a meteoric rise and risk has really come up along with bullish sentiment. No more fear and despondency. Now folks are giddy, cocky and greedy. That tells me to dance closer to the door and not to sit on my hands.

I am finding plenty of stocks to buy and my watch list keeps growing. However, many of you will yawn at buying Bristol Meyers over Broadcom which we sold. Same with owning Moderna over Marvel which we sold. Who really wants to buy Hershey’s and Dow Chemical over Nvidia and Super Micro today? Well, I do.

A Q1 stock market peak remains in play with a 5-10% pullback by Memorial Day. That’s my thesis.

On Monday we bought levered S&P 500 and more BA and more DXHYX. We sold XLU. On Tuesday we bought HELE, CLX and more levered NDX. We sold PAAS, VLO, levered S&P 500, some AAPL, some MSFT, some GOOG and some TSLA.


Paul Schatz, President, Heritage Capital