Oil falling to $70 a barrel?...

Oil falling to $70 a barrel?... Porter's bearish forecast... The latest on DailyWealth Trader... Why your broker gets you into losing trades on purpose...

 Is the big oil correction finally here?

Last week, West Texas Intermediate crude oil plunged 6.1% to reach its lowest price in four months. The press is citing many different factors... like fears of the economic slowdown in Europe and weak job numbers in the U.S. "It's a confluence of factors dragging oil markets lower," said Michael McCarthy, a strategist at the global financial services firm CMC Markets Asia Pacific.

Several analysts at Stansberry & Associates say the press is missing the big picture: that oil prices are poised for a big decline.

Thanks in part to new technologies allowing domestic drillers to access vast new resources, oil inventories are historically high right now... and set to grow over the coming years. This will push the price of oil down significantly from its current highs. The most outspoken "oil bear" is the founder of Stansberry & Associates, Porter Stansberry...

Several weeks ago, Porter told the audience at Casey Research's Recovery Reality Check Summit that oil is headed for a big move down. Porter says this bear market will be driven by the large and growing new supplies coming from recently discovered shale oilfields. He says many heavily indebted oil and gas companies will go bankrupt as a result of the supply surge.

The chart below displays the trading in crude oil over the last two years. As you can see, prices have surged from $70 a barrel in 2010 to nearly $110 a barrel this year. But last week's 6% plunge produced something called a "downside breakout." This is a term used to describe when an asset breaks through to new price territory. (Read our "Common Sense Guide to Technical Analysis" for more information on this idea.) If Porter is right, crude oil could easily return to 2010 levels... or lower.

(One aside: If you ever get the chance to attend a Casey Research conference, drop what you're doing and take it. The folks at Casey put on the best investment conferences you'll find anywhere.)

 Our premium daily trading service, DailyWealth Trader, just told readers about one of the world's most vulnerable stocks in an environment of lower oil prices.

This company is also one of the world's most popular oil stocks... But DailyWealth Trader readers just learned that much of its perceived value lies in reserves that will cost hundreds of billions of dollars to develop. That's not a typo: Hundreds of billions in development costs. We wouldn't be surprised to see the stock get cut in half over the next year or two.

A reminder: DailyWealth Trader is our newest product. It is a "daily digest" of the world's best trading ideas. In the last few months, the service has introduced ideas from our own Dr. David Eifrig and famed short-seller Jim Chanos. It has shown readers how to "leverage" recommendations from Dan Ferris' Extreme Value to double or triple what readers would normally make from his safe stocks.

Currently, we're only publishing the product for our Alliance readers... But we expect to make it available to a wider audience in just a few weeks. If you're even the slightest bit interested in trading, DailyWealth Trader will be an extremely valuable resource for you.

 Speaking of "downside breakouts"...

The currency market is no fan of socialism.

The pan-European currency, the euro, just fell to a three-month low of $1.2955. The decline came in response to the recent French presidential election. Francois Hollande, a socialist, is now president of Europe's second-largest economy. As a socialist, Hollande will fight tooth and nail against any reductions in government spending. He'll borrow and spend as much of other people's money as he can get his hands on. He'll pursue "soak the rich" tax policies. He'll fight for more of every bad idea that got Europe into its debt crisis in the first place.

Hollande's approach (which many in Europe support) will be like fighting alcoholism with a bottle of Jack Daniels. The market realizes this and is sending the euro lower.

 New 52-week highs (as of 5/4/2012): None.

 We published an extremely important idea in our free daily e-letter Growth Stock Wire this morning... And we'd like to make sure all our readers understand it.

Regular Digest readers know that despite the pitfalls of publishing educational ideas, we go to great lengths to help our readers understand vital investment concepts. These concepts aren't taught in schools. Many financial professionals don't even understand them. Over the past few years, we've published material about buying individual corporate bonds... selling put options to generate safe income streams of 15%-plus... how to practice intelligent asset allocation... and how to size your positions.

Most readers aren't interested in these ideas. In fact, they reject them. Their focus is on scoring the "one big hit" that will make them rich.

Wealthy, seasoned investors know that focusing on the "one big hit" is the path to the poor house. As we've detailed dozens of times in the Digest, building a solid foundation of basic financial knowledge is the ultimate way readers become rich... not scoring on a "hot tip" or a big options trade.

 With this in mind, we'd like to make sure ALL our readers know about Wall Street analyst ratings.

Wall Street analyst ratings should be regarded with the kind of suspicion normally awarded to toupee-wearing used-car salesmen. But the vast majority of investors don't know why this is the case. The essay below reveals why... 

Why Your Broker Knowingly Gets You into Losing Trades

By Brian Hunt

Editor in Chief, Stansberry & Associates

If you've been investing for more than a few years, you've likely taken comfort in the idea of buying a stock that is highly rated by Wall Street analysts.

You might have heard something like, "19 out of 20 analysts that cover the company rate it as a buy," and felt good you owned shares in a company that so many other people like.

Even now, you might factor in rosy Wall Street analyst ratings when looking for new stock purchases.

This belief is widespread. Almost every "armchair investor" in America has it...

And it's one of the surest paths in the world to wrecking your portfolio.

Buying stocks with high ratings from lots of Wall Street analysts should be nicknamed, "Getting in way too late"... or "Holding the bag."

If you're buying stocks that are rated "buys" from "19 out of 20 analysts," congratulations. You're Wall Street's patsy.

A stock market participant will make far more money by focusing on ideas that are ignored – or even hated – by the majority of Wall Street analysts. By taking this approach, you'll get far more value for your investment dollar. You'll avoid being Wall Street's patsy.

There are two major reasons the vast majority of Wall Street research is unreliable...

One: Although many Wall Street analysts have expensive degrees and excellent training, they are ultimately humans. We're social creatures. It feels good to be part of a crowd.

Oftentimes, the desire to be part of a crowd overwhelms the good sense of even the smartest people. So even though an analyst might think a certain stock or a certain industry sector is a great bargain, he will be hesitant to say "Buy!" if many other people have doubts about the idea. It's going to be too uncomfortable for the analyst.

The problem here is that an "investment crowd" is almost always wrong. When everyone loves an idea, it's going to be a terrible bargain. Optimistic bidders will have already pushed shares to excessive valuations. New buyers get a horrible deal. They buy expensive shares from the folks who got in early... And they get soaked.

Two: Wall Street makes the bulk of its profits not from providing great research... but from doing things like raising money for companies and collecting fees.

Wall Street has a vested interest in the public staying relentlessly positive. When the public is relentlessly positive, it relentlessly buys stocks and bonds. This creates billions and billions of dollars in profit for Wall Street.

For example, if a firm is raising money for a steelmaker, you can be sure that its analysts will be encouraged to write positive reports about the steel industry... no matter what they really think. The analysts have to "toe the company line."

The average investor doesn't give much thought to this... but it's common knowledge in the industry. Insiders know that most Wall Street research is created to fleece ignorant investors. When you buy a stock because it is highly rated by Wall Street firms, it's like buying a used car that is rated highly by the majority of used car salesmen on the lot.

For example... during the late 1990s tech bull market, Wall Street analysts placed "buy" ratings on hundreds of companies that had no shot at making money. But those very companies were paying Wall Street billions of dollars in fees. In private e-mails, analysts called the companies "pieces of s**t." Meanwhile, they were urging small investors to load up.

In 2007, just before the credit crash, Wall Street analysts had almost every mortgage-related security rated as a "buy." It was in their interest to convince investors to buy this toxic stuff. Wall Street was earning billions of dollars selling it to the public.

These are recent examples... But these conflicts of interest have existed for a hundred years.

Again... you're far better off focusing on companies and sectors that the majority of Wall Street analysts are ignoring... or are even extremely bearish on. Buying assets that Wall Street analysts can't stand will get you into situations like buying cheap, ignored gold stocks in 2001... right before they entered a massive bull market.

Adopting this strategy will feel strange at first. You'll be doing the opposite of what "experts" on television are telling you to do. It will be uncomfortable to be away from the crowd.

But remember... those experts are subject to mindless, crowd-following urges like anyone else. They also make the most money by selling the most dangerous assets. They are the high-priced equivalent of a used-car salesman knowingly selling you a lemon... while raving about its performance.

If you can adopt this strategy, you'll set yourself up for giant capital gains in the next year or two. The opportunity will be in natural gas. As Growth Stock Wire readers know, the industry is entering a crisis of extremely low prices.

Many natural gas businesses will go bankrupt. They will become extremely unpopular investments on Wall Street. Many natural gas stocks will have "zero out of 20" analysts rating them as a buy.

We're not there yet. But when we are... that's when it will be time to buy the stocks in size.

Regards,

Brian Hunt

Delray Beach, Florida

May 7, 2012

P.S. What are your thoughts on Wall Street research? Do you believe it's all produced for the benefit of the retail investor? Are we off the mark? Let us know at feedback@stansberryresearch.com.