​The recent NBA playoff series between the Indiana Pacers and the Cleveland Cavaliers may be been a metaphor for the current stock market played out in a different arena.
 
The incumbent and reigning Eastern Conference champion Cleveland Cavaliers faced off against the rising, young and inexperienced Pacers in a series few expected to go seven games.
 
The best of seven series was all tied at three games a piece as it entered a pivotal game seven at Cleveland’s Quicken Loans arena.
 
Could Cleveland’s star player and certain Hall of Famer, Lebron James, do it again? 
 
Could he hoist the team on his shoulders and find a way to win against a more talented team from top to bottom?

As has been the case for so many seasons, Lebron James saved his best for last! 
 
He scored 45 points on Sunday night on 16-of-25 shooting from the field.  This was his third 40-point plus game of the series.
 
He single handedly carried his team to a game seven win, 105-100 over the upstart Pacers. 
 
James finished the series with a 34.4 points per game average on 55.3% shooting from the field, both well above his season averages.
 
Asked after the game to describe how he felt, he simply said “I am burnt right now……I’m tired and want to go home.”
 
So what does this story have to do with the stock markets? 
 
Quite a lot actually!
 
Lebron James averaged 34.4 points per game during this seven game series.  This is a full 6.9 points per game over his season average of 27.5 points per game.
 
You don’t think that game seven was the only game Lebron James went home tired do you?  He carried his team in this series.  No one on his team scored more than 20 points in any one game.
 
Much like Lebron is tired following his game seven win.  I believe the markets are tired as out outlined in our recent quarterly client letter.
 
However much like Lebron James game seven heroics, I believe this market has "One More Run" left in the tank.
 
Let me tell you why.
 
First, more Americans expect stocks to fall over the next 12 months than rise, according to the Conference Board’s Consumer Confidence survey for April.  This is the first time this has happened since the election.
 
I know I personally have heard from more nervous clients in the past few weeks than at any time since the Great Recession.
 
So let me tell you why this is a good thing.  It simply because Bull Markets usually do not end with a fearful public, they end with mass euphoria and a public in denial. 
 
I know its contrarian, but it’s true.

You can see in the chart below that consumer sentiment has sure shifted to the negative side.
 
Second, the long-term trend is still up.

Here is a chart of the S&P 500 index and there is obviously a lot here, but let me try to unpack this for you. 
 
The RSI indicator (top chart pane) is a momentum indicator.  Notice how we are still above the blue support line for this indicator at around 68.   It has also peeked below the 70 line in the past and recovered (see the 2013-2015 period).  So it's possible that this is what is happening this time.
 
Also the price chart (middle pane) has formed a doji candle.  This is typically a reversal candle.  In this case, the sign of a possible upward reversal.

You can see it even more clearly on the far right of the chart in the zoom thumbnail.  It looks like an old style transistor in a electronic device.
 
If I throw in the charts of the Nasdaq Composite and the Dow Jones Industrial Average (below), you would see all charts are similar with the Nasdaq being the strongest with its RSI still greater than 70 (another positive sign).

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​Finally, when we move from monthly charts (very long-term) to daily charts (shorter term),we see that the S&P 500 (and Dow Jones Industrial Average – not pictured) has formed a consolidation pattern (the blue dotted lines).

This pattern called a symmetrical triangle usually is a continuation pattern of the previous market direction.
 
The trend prior to this consolidation pattern was up as you can see from the moving averages (orange, pink and green) on the left of the chart.   It would stand to reason then that the odds favor an upside break above this consolidation pattern based on historical price patterns.
 
We can also see in the lower pane that the volume moving averages are starting to trend upward, which I also believe is a positive trend.
 
If we stay above the thick blue/purple trend line at 2625, I believe the markets will eventually break to the upside.  Even if the markets move lower than 2625, I believe there is a good chance it will just retest the lower band of the symmetrical triangle and then bounce higher.
 
So let’s say I am right, what does this say for the markets?
 
I believe just like Lebron’s James heroic efforts to push his team to a game seven win, this market will do what it needs to break out again, just maybe, for one last move higher.

Corrections are healthy and normal.  We were overdue for a correction and I believe that is all this is at present.
 
Bull markets don’t usually end with a shy public as we see in the confidence numbers, above.  They usually end with a euphoric public taking every share available from an all too willing seller, Wall Street.
 
You know the story from here.  The public is left to hold the bag, while Wall Street counts its profits. 

It is a sad story!  One that has been repeated throughout market history and one that I believe will repeat again before this market peaks.
 
One last thought!  Who is watching your investment assets?  Does that person have the tools and training to make sure you are not part of the usual carnage brought upon the unsuspecting public by a sophisticated and experienced Wall Street.
 
If not, maybe it’s time we talk?   Schedule your free second opinion now.  

Through the years, I have done a less than adequate job of telling prospective clients how we can help them.

Just recently, a prospective client suggested we get together for lunch to once again attempt to answer the age old question of "how can we work together and what can you do for me?"

Quite honestly that is like asking a doctor to prescribe a new drug without the allowing him or her to do a full medical history and examination!

How should I have answered this prospective client?  I should have told them "It all Starts with a Plan."

The plan is where we get the chance to do a full financial history and examination.  It is where we help the client get organized, provide them with a personalized client website where they can track their financial lives and we can interact with them in the financial industry's form of an examination.

We use some pretty slick technology to do that interactive plan.  This video does a much better job than I have been doing of explaining that process.

​It is only after this process that we can provide specifics recommendations on how we can help the client achieve their specific goals and objectives.

They can then make the decision if they agree with the specific recommendations, ask for clarification, or collectively we can explore other options.  Depending on the complexity of the client's estate, we may include their trusted CPA, attorney or insurance agent as part of the process.

Once we are in agreement on the course the client should take, we can then decide who is best suited to implement that client's recommendations.

For clients with substantial and complex financial lives, this may include additional services beyond planning and investment help such as our family office suite of services whereby we design a customized group of services for them to free them from the complexity of managing large wealth.  Please note that we don't necessarily have to manage investment assets to provide these services.

For the business owner, it may be a differing set of services designed to help them prepare for the eventual transition of their business to future generations, a core management group or an outside buyer.

In the case of both the complex client and business owner, we work with their existing trusted advisers and other specialists to facilitate the desired outcome. 

If you are looking for help with your planning, let me tell you where it starts.  It All Starts With a Plan!  Find out more here.

In the 1970s and 1980s, Japanese car makers made hugh strides improving upon both their manufacturing capabilities and in the quality of the vehicles they introduced.  It was not so much that they were innovators, but they found new and interesting ways to improve upon what was already out there and offered by other automakers.
 
“Kaizen” is the Japanese word for “improvement.”  During this period and even today, it has become synonymous with the philosophy made famous by Japanese manufacturers, most notabily Toyota.
 
According to Investopedia, “Kaisen” involves improving processes.  Instead of focusing on the product, the idea was to improve the way it’s made, and those are two different things. 
 
Formally, it's using statistical methods to examine the variations in outcomes, and work out ways to get closer to the result you want. So, for example, instead of just saying that a factory has to produce pipes with tolerances of 1/1000th of an inch, managers would look at the variation between parts and try to see if that could be narrowed.
 
This focus on “Kaizen” allowed Japanese automakers to increase their share of the U.S. auto market while the U.S. Big Three automakers’ shares declined.  It is also why it’s tough to find a bad vehicle today as global automakers had to improve to keep up with their Japanese counterparts.

Just like the Japanese, we are also always looking to improve or “Kaisen”! 
 
In the last ten years, InTrust moved from mutual funds to individual stocks and exchange traded funds (ETFs) as the primary vehicles for implementing client investment ideas.  We moved from mutual funds to ETFs because they are:

• low cost
• allow for greater diversification
• track broad indexes and therefore broad market exposure
• can be traded at any time
• their holdings are transparent

 
ETFs, like everything, have continued to evolve from a basic group covering a select group of indexes to over 5,024 funds trading globally, according to research firm ETFGI. 
 
When we started out with ETFs, the small number of them made choosing the right one simple.  Now with more than 5,000 ETFs to select from the choices are great and varied, including passive, actively managed, sector, environmental, social and governance (ESG), inverse, leveraged and factor or smart beta ETFs, just to name a few.
 
We likewise have continued to evolve.
 
I told clients in our last quarterly newsletter that we had added factor-based ETFs to our approved list of funds. 
 
The reasons are simple for this addition:  historically they have outperformed their benchmark indexes while still offering the all the advantages above that drew us to ETFs.
 
His in landmark book called “What Works on Wall Street (4th edition),” James O’Shaughnessy showed that introducing certain factors such as low price to earnings, high dividend or high momentum to a portfolio of stocks greatly improved long-term portfolio performance.
 
In this case, long-term was looking back 40 to 100 years of data.
 
What he found in this research was that large cap stock performance was greatly improved by adding high dividend stocks to a portfolio , as you can see below.

​At the same time, the beta or volatility of return relative to the benchmark declined.
 
This is why we have added such ETF positions to many of our Personalized Portfolio Solution (a modified buy and hold strategy) portfolio where doing so was not income tax prohibitive.  
 
It is also why our Equity Value and Balanced portfolios solutions work so well as they include the highest dividend paying stocks in the Dow Jones Industrial Average in their portfolios.
 
O’Shaugnessy also found that large cap stock performance was greatly improved by adding momentum based strategies to a portfolio.  Momentum is where a stock or security is experiencing greater price movement than their peers over a given period of time for a given type of stock, such as large cap stocks.

Adding momentum stocks increased returns historically vs the benchmark but also increased the beta or volatility of return.  However, this increase in beta was more than offset by the resulting uptick in performance as reflected in the Sharpe Ratio.
 
This is why we have added such ETF positions to many of our Personalized Portfolio Solution (a modified buy and hold strategy) portfolio where doing so was not income tax prohibitive.  
 
It is also why our Equity Growth portfolio work so well as it incorporates the highest momentum stocks in the Dow Jones Industrial Average into its portfolios.
 
It should also be noted that momentum and deep value (high dividend payers) are the perfect complement to trend following based timing models, which allows us to focus on not just growing your capital but protecting it!
 
So I have a simple question for you?
 
Is your advisor constantly looking to improve or “Kaisen”? 
 
If the answer is no, maybe it’s time to get a free second opinion?
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