The Crash in Crude Is Here

The bull market turns eight... 'Bull markets don't die of old age'... The crash in crude is here... Sjug says there's more downside ahead... Can you really beat the market by 50%, on average, on every trade you make?...


The bull market turned eight today...

The benchmark S&P 500 Index bottomed on March 9, 2009 at 676.53. Exactly eight years later, the index trades around 2,365... a gain of nearly 250%.

The current bull market – defined as a rally of at least 20% following a decline of at least 20% – is officially the second-longest in history.

According to data from financial-research firm Bespoke Investment Group, the longest bull market stretched more than 12 years, from December 1987 through March 2000. The S&P 500 rose 582% over that time frame.

Some analysts have warned the rally is getting "long in the tooth," and is likely to end soon...

But regular Digest readers know that isn't necessarily the case. As our colleague Steve Sjuggerud has explained many times, bull markets "don't die of old age." He explained this idea most recently in the February 13 issue of our free DailyWealth e-letter...

Here's the big thing you need to know: Stock bull markets do not die of old age.

Please, read that sentence again. Say it out loud. Repeat it. Do whatever it takes to sear it into your brain. It sounds so simple... But it will be harder to stick with this idea than you think. Everyone around you will tell you differently. But they don't know the truth...

Why do people think bull markets die of old age? Because dying of old age seems natural. People assume that stocks are like the seasons – that we have winter (the bad times) and summer (the good times).

There is some truth to that thought – stocks DO move from good times to bad times. But stock market booms and busts are not based on the calendar... There isn't a reliable schedule for up moves and down moves. Booms and busts are NOT based on known dates or the speed the earth travels around the sun.

Of course, sooner or later, the bull market will end...

But Steve says it won't be because stocks have rallied too long. Instead, he believes it will end from "unbridled optimism"... similar to what we saw in tech stocks in the early 2000s and in the housing sector half a decade later. And as we noted last week, Steve now thinks the last "inning" of the bull market – where stocks absolutely soar as investors become wildly bullish again – is about to begin.

Elsewhere in the market, crude oil is breaking down...

Crude plunged more than 5% on Wednesday – its single biggest one-day decline since February 2016.

Prices fell another 2.5% today to their lowest levels since late November. West Texas Intermediate crude ("WTI") – the U.S. benchmark for prices – fell to as low as $49 per barrel. Brent crude – the international benchmark that tends to trade at a premium to WTI – fell to around $52.50.

Most notably, both WTI and Brent crude are now trading below their 100-day moving averages ("DMA") – a metric followed by many technical analysts – for the first time since OPEC's historic deal was announced last fall.

The recent decline is being blamed on a flurry of news this week...

On Wednesday morning, the U.S. Energy Information Administration (EIA) reported U.S. oil stockpiles jumped for the ninth consecutive week to another new all-time record. Supplies rose another 8.2 million last week to 528.4 million barrels, the most in history.

The EIA also said U.S. oil production has moved back above 9 million barrels per day ("bpd") for the first time in nearly a year. It now expects the U.S. to produce an average of 9.2 million bpd for the full year. And it predicts the U.S. will produce a huge 10 million bpd by the end of next year, for an average of 9.7 million bpd in 2018. This would best the all-time record of 9.6 million bpd set nearly 50 years ago in 1970.

Doubts are also growing about OPEC's commitment to cut production...

As we noted last week, OPEC reports it has reduced its output by about 70% of the 1.2 million bpd it promised. But this figure is misleading...

Saudi Arabia – OPEC's largest producer – and Kuwait have cut their production by far more than originally promised. Without this, OPEC's compliance would be far lower. As financial-news network CNBC reported this morning...

Despite claims from participants that the existing agreement is functioning well, it actually has fundamental flaws if you peek behind the headlines, according to Eugen Weinberg, head of commodities research at Commerzbank. "Compliance within OPEC is less than 50 percent if you exclude Kuwait and Saudi Arabia who cannot shoulder the whole burden over the long-term," Weinberg told CNBC by phone on Thursday.

Furthermore, while production cuts might be underway on the part of some participants, export numbers have not softened, hence why market supply is still elevated. "The export numbers are at the same level as last December which demonstrates that the oil production cut is having little effect on market levels," he added.

"The market is looking for a price recovery from here but as there is still not enough of a cut to send supply into deficit, I think $50 per barrel is more likely to be a ceiling than a floor with prices potentially slipping down to $40 this year," opined the Commerzbank analyst.

Of course, non-OPEC members of the deal aren't living up to their promises either... As we mentioned, they have achieved just 66% of their promised cuts to date. And Russia – the largest non-OPEC producer – recently admitted it has cut production by just 100,000 bpd, or just one-third of what it originally promised.

At the annual CERAWeek energy conference in Houston this week, these members reaffirmed their commitment to reach their promised cuts before the deal expires in May. But they would not commit to extending the agreement any further.

In other words, even if OPEC can somehow reach its promised cuts in the next few months, production is likely to rebound soon after.

And according to Pioneer Natural Resources Chairman Scott Sheffield – who also spoke at CERA Week on Tuesday – oil will fall back to $40 per barrel or less when it does.

Regular Digest readers weren't surprised by crude's plunge...

We've been warning of the rising risks in crude oil for weeks now. And while we didn't know exactly what would eventually set off the decline, we knew it was likely just a matter of time before these problems "mattered." As we wrote in the February 7 Digest...

This mix of speculative fervor, rising production, and weakening demand is a dangerous combination... It's a recipe for dramatic declines if the rally falters.

As always, there are no guarantees in the markets... These extremes could grow even more extreme before they reverse. But if you're still long the oil sector, be sure to keep a close eye on your stops.

Steve Sjuggerud believes there's more downside ahead...

Last week, he told his readers about the two main reasons to expect much lower oil prices. As he wrote in the March issue of True Wealth Systems...

It's going to get ugly for oil prices... The question isn't if this will happen... The question is when. The fall could be dramatic, as I'll explain. A 50% decline is entirely possible once things get going.

I know that might sound crazy. But I'm not overselling it. We could be on the verge of a major decline, based on history. Right now, all signs point to lower oil prices. There are two big ideas working against oil today...

  1. Sentiment is at extreme levels based on our favorite measure. Oil prices fell 75%-plus after similar extremes in recent years.
  1. Oil fundamentals point to lower prices. The supply-and-demand dynamic is working against oil right now.

These are scary points. Cheap and hated are two of the things I look for when investing in positions going up... So expensive (bad fundamentals) and loved (extreme positive sentiment) are good signs for a short position.

In other words, oil is expensive and loved – the exact opposite of what he looks for in a good long investment. But crude prices were still in an uptrend, so he didn't recommend shorting oil just yet.

This week, that changed... Steve says it's now time to short oil. As he wrote in a special True Wealth Systems update this morning...

Last week, we laid out the case for betting on lower oil prices... But oil hadn't broken down enough yet. We couldn't bet against the trend, so we told you to wait. Well, the trend in oil has broken down. And that means it's now time to bet against oil prices...

Nothing has changed since our issue last week... Both of these [reasons] are still true. What has changed is the trend. Last week, oil prices were still trending higher. But after a 5% fall yesterday, that's no longer the case. Take a look...

Oil fell by 5% yesterday and is down around 3% this morning, as I write. This is a clear breakdown in prices. And that means we want to place our bets against oil now.

But Steve doesn't actually recommend shorting oil or oil stocks...

Instead, he has found an even better, "one click" way to profit from crude's decline... He expects True Wealth Systems subscribers could see quick 30%-40% gains as crude continues to fall. And history suggests triple-digit upside is possible before it ends.

You can get instant access to Steve's recommendation with a 100% risk-free subscription to True Wealth Systems. But we should warn you... if you've never tried this service, you may be surprised.

You see, True Wealth Systems is unlike any other service we publish. In fact, it's based on a strategy that runs counter to much of the advice you've learned from Porter and our other analysts over the years. But the results are undeniable...

Steve's True Wealth Systems approach has trounced the market by 50%, on average, on every trade it has made. And these aren't "cherry picked" results... These are Steve's actual audited results of every single True Wealth Systems recommendation across 90 trades over the last five years.

You can learn more about True Wealth Systems – including how you can try it for 30 days absolutely risk-free – right here. (This does not lead to a long video presentation.)

New 52-week highs (as of 3/8/17): Facebook (FB), short position in GGP (GGP), and JD.com (JD).

In today's mailbag, a great testimonial from a young subscriber... feedback on the latest from P.J. O'Rourke... more on lowering your brokerage fees... and a belated note for Porter. Send your questions, comments, and concerns to feedback@stansberryresearch.com. As always, we can't provide individual advice, but we read every email.

"Just read Dr. Eifrig's DailyWealth about the secrets of the rich. I have to say I have the exact opposite problem than the rest of Americans. I save 55% of my net income; 5% directly to my ROTH 401k, just enough to get my company match, then I put the rest in cash and max out my Roth IRA which I utilize for all Stansberry Research recommendations. My home is paid for. I drive a 'new' truck that I'm still making payments on, however they are only $370 per month because I put down 40% when I purchased it.

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Brill comment: Thanks for the note, Austin. Regular Digest readers know building wealth starts with saving. Unfortunately, most folks don't understand this, or simply don't have the discipline to follow through if they do... So it's always great to hear from subscribers who "get it." We look forward to meeting you at our annual Stansberry Conference or one of our other events someday soon.

In the meantime, we'd just remind you that while building wealth does require discipline and delayed gratification, you don't need to make yourself miserable, either. As Doc has shown his readers for years, you don't have to spend a lot of money to live well. If you're not already reading Doc's excellent – and FREE – Retirement Millionaire Daily newsletter, it's a great place to start. Click here to sign up.

"Amen PJ, you can just as easily call Facebook, Hatebook. The politics of hatred are just too much for me. It's all fake news and hatred. I simply login and like a few things from my ex and my nieces, wish everybody Happy Birthday and get off. Five minutes a week is plenty. It's supposed to be good for marketing but I'm a computer geek not a Facebook geek. I will always be a computer geek but if I give up Facebook altogether my life will only IMPROVE." – Paid-up subscriber Craig

"I changed brokers from Scottrade to Charles Schwab, and they gave me commission free trading for switching for as long as I had a Scottrade account... that's till February 2044!" – Paid-up Stansberry Flex member Ryan R.

"Porter, while a little late, I must congratulate you on the best investment guidance and advice I have ever read in these 9 essays [from June 2014]. At the time, I thankfully had the intuition to know how valuable and great the content was after quickly reading through it, so I printed them and filed them away for any future reference.

"I now happened to come across them again, reread them slowly, and realized what a treasure of investment wisdom is found in these essays. I consider it a masterpiece that puts most of the other notable investment books to shame. And I speak from experience because I read all the time and have read many books, but none had such a strong inspirational and intellectual impact on me as these 9 short essays. These essays should be a mandatory read for every one of your subscribers. I am sure many if not most of us just quickly peeked and then deleted them in June 2014.

"Porter, these 9 essays should form the basis of a book which I think you should write for the benefit of the entire investment community. It would be a bestseller!! I know the financial industry would not be enthralled and delighted, but the millions of ordinary investors would finally see the 'light' and follow your wise advice. My sincere thank you for letting me see the Truth and for being such a generous and kind teacher. Keep up the excellent work you and your team provide us on a daily, weekly, and monthly basis for so many years. Porter, you are the best!!" – Paid-up subscriber Stanley

Regards,

Justin Brill
Baltimore, Maryland
March 9, 2017