Can mindfulness be maintained when lost in thought?

Ok... so a bit off topic here. Recently I have found great reward in keeping with the moment as much as possible [1]. Simply watching what arises in my experience as low-level as possible.

In reality, I briefly watch the mind as it thinks, then I, the observer get swept up into the thought itself.

I pop out the other side after seconds, minutes, hours, days. I am self aware again.

My question is, where is it that I go during this process? Can observation take place there? Should one avoid this state (with effort), or accept its coming and going?

State A is watching whatever arises, including myself.

State B is forgetting that there is even one to watch.

What is the relationship between these states?

[1] - Waking Up app - of late James Low)