The 1-Minute Market Report - April 19, 2019

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Includes: BIBL, CHGX, CRF, DDM, DIA, DMRL, DOG, DUSA, DXD, EDOW, EEH, EPS, EQL, ESGL, FEX, FWDD, GSEW, HUSV, IVV, IWL, IWM, JHML, JKD, OMFS, OTPIX, PMOM, PPLC, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RVRS, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SFY, SH, SMLL, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USA, USMC, UWM, VFINX, VOO, VTWO, VV, ZF
by: Erik Conley
Summary

April has been an unusually quiet month in the stock market so far, with daily price changes well below their long-term averages, and the volume of trading on the decline.

One possible explanation for the declining volume is that we are reaching a point of equilibrium where the demand for stocks is matched by the supply of stocks.

In my view, there is about 5-10% upside after a breakout, and 10-20% downside. I for one don't care for those odds.

What happened last week.

What we're watching for next week.

April has been an unusually quiet month in the stock market so far, with daily price changes well below their long-term averages, and the volume of trading on the decline. What does it mean and why am I watching it?

One possible explanation for the declining volume is that we are reaching a point of equilibrium where the demand for stocks is matched by the supply of stocks. Another way to put this is that the bulls and the bears are at a stalemate.

We know from the long arc of stock market history that these stalemates don't last very long. While the market is hibernating, the economy continues to grind ahead and new information comes to light that motivates either the bulls or the bears to come out of their bunkers and charge ahead.

Nobody knows which way this stalemate will resolve itself, but my guess is that the bulls will succeed in breaking through to a new high water mark, but the bears will not go quietly. After the bulls establish a new high, where do they go from there?

In my view, there is about 5-10% upside after a breakout, and 10-20% downside. I for one don't care for those odds.

Chart of the Week - Trending Daily Volume Year to Date

Chart 1. S&P periodic returns

Positive numbers all around. Up 15.9% year to date. That's a great year in just 4 months! Maybe we should take our profits now and wait for the next bear market to buy everything back at much lower prices? Very tempting, and I have a number of clients who are doing exactly that.

But if you're a bull, you probably believe that the upside is more than 5-10% from here. You may have your sights set higher. Perhaps 15-20% higher... or even more. I make no claim that my forecast of what's coming is better than yours. But I do claim that I have a detailed and robust methodology for making my forecasts. Do you? Or are you flying by the seat of your pants and basing your optimism on what you are hearing from the perma-bulls on CNBC and elsewhere? Are you a member of the Cramer Nation?

All I'm suggesting is that you look at it and do a gut check.

Chart 2. Distance from Key Markers

Wow. Up 23% from the most recent low water mark? Fantastic! But still below the previous high water mark, by 0.9%. Will the bulls push through the old high, or will the bears push them back?

Are you an optimist? Then you probably think it's only a matter of time before the bulls break through the old high of 2,930. In my opinion, there's a 60-40 chance that it could happen. But the better question is, what will the bulls do after that? How much ammo do they have to keep pushing the market higher? Think about it.

Final Thoughts

I've been doing this for a long time. I'm not always right with my forecasts, but I'm right more often than I'm wrong (88% to be exact). I might be wrong this time, but I don't think so. There is so much data coming out that supports my view of a 2 to 1 risk-reward ratio, I'm comfortable with my forecast.

I'm not an outright bear because I'm still 65% stocks. But with each passing month I take a little more risk off the table. One of the things that I get a kick out of is the aggressive pushback I get from the true believers whenever I post an article that contains a hint of pessimism. Just recently I've been labeled a perma-bear for my cautious comments.

It doesn't bother me, because I have high confidence in my process and my models. As long as I continue to add value to my clients and subscribers, I will remain faithful to the way I view this constantly changing world of investing.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.