The month of April lived up to its reputation as one of the strongest months of the year. I harken back to late March, when I counseled that April was likely to be strong, as we came off the 20-week cycle low. It was hard to accept that the market could go higher then, but after sputtering just a bit, it finally gripped. All in all, it was a great month.

Having said that, our swing strategy remains 100% cash, as we profitably scaled out of our positions as the month progressed. The market has made little, if any, progress since April 19th. It could be consolidating to go higher, and it almost tripped a buy signal Thursday. But as long as the market remains under the Algo trigger line (see the chart below), I am not interested in any long positions.

Friday (also the last day of April), the S&P 500 index futures closed right on the 5-day exponential moving average. If you are still in the market, the 5-day EMA can be a good stop line. You could use a violation of the 5-day EMA on a closing basis as your line in the sand.

Unless the index can poke above the Algo trigger line on the daily chart (see below), my intermediate bias remains negative, believing that we are close to an intermediate peak – if not already there. 

Even if we are peaking, this does not mean that the market will head straight down, as another minor low might be possible before the 18-month cycle downdraft kicks into high gear. Nor am I predicting a crash – just a normal, expected, and healthy correction of 10% to 15%. It does not really matter what I expect anyway. I am confident the algorithm will bring us back into the market at the appropriate time – whether it is a normal correction or a crash. The most important principle at work here is to avoid the correction – no matter the depth.

What I can say with some confidence is that the risk/reward ratio is unacceptable to me at this level. Even if the Navigator Algo trigger is tripped back into a long trade, it would still be a tough decision to accept a buy signal given where we are. Key stocks rolling over on stellar earnings last week has not helped my confidence.