More on Porter's Bombshell

Is the pullback finally here?... Technology continues to 'lead'... Why the selloff could continue... More on Porter's bombshell... Introducing Flavious Smith...

Is the pullback finally here?

Regular Digest readers know the technology sector has been leading the market higher this year. In fact, just a handful of the largest technology stocks – including Apple (AAPL), Amazon (AMZN), Facebook (FB), Microsoft (MSFT), and Alphabet (GOOGL) – have accounted for approximately one-third of the market's total gains.

But earlier this month, we noted some potential "red flags." First, corporate insiders at these same firms had suddenly become far less bullish. Meanwhile, these stocks were bumping into significant "resistance." As we explained in the June 1 Digest...

This Index is a subset of the broad S&P 500 Index comprised solely of blue-chip technology-related stocks. And just four stocks – Apple, Microsoft, Facebook, and Alphabet – account for nearly half of the sector's total market value.

As you can see in the chart, the red line has acted as a "ceiling" for tech stocks since the bull market began. Even if these stocks ultimately break through this level, they're unlikely to do so on the first attempt. A short-term reversal – or at least a pause – is likely.

This appears to be playing out now...

The major U.S. indexes declined on Friday and fell again today. And just as they led on the upside, the largest technology stocks have now been leading the market lower. As Bloomberg noted this morning...

When it comes to the ongoing technology beat-down in the stock market, it appears not all shares are created equal.

Indeed, just five names account for nearly 75% of the drop in the Nasdaq Composite Index, which has fallen more than 2.1% since June 7...

Much of this dynamic is due to giants like Apple, Microsoft, and Google parent Alphabet falling as much as 6.5%. Those companies account for nearly 30% of the index's weighting, and their outsize impact has driven the gauge lower even though the bulk of the stocks are doing fine.

Friday's decline appears to have been triggered by a research note from investment bank Goldman Sachs analysts that echoed our "big tech" warnings. As financial-news network CNBC reported...

A widely read piece of research from Goldman Sachs showed that five stocks – Facebook, Amazon, Apple, Microsoft, and Alphabet – have been "key drivers" of both the S&P 500 and the Nasdaq 100. Goldman argued that this outperformance "has created positioning extremes, factor crowding and difficult-to-decipher risk narratives," going on to note that thanks to these stocks, the "momentum" investing factor "has built a valuation air pocket underneath it creating cause for pause."

To make things worse, the team led by Robert Boroujerdi wrote that the tech run "has evoked memories (nightmares?) for some investors of the last euphoric Nasdaq run including yours truly," and made the point that tech stocks were actually more profitable back in the tech bubble, though on the other hand they were trading at much higher valuations.

We remain cautiously bullish for now...

We continue to believe this bull market has further to run. But pullbacks and corrections are a normal part of every bull market, and we've now gone an incredible 18 months without a decline of 10% or more in U.S. stocks. We're long overdue.

While the declines to date are relatively small, there are indications of more downside ahead. Most notable, our friend Jason Goepfert – publisher of SentimenTrader – notes there were a record number of "buying climaxes" in the large-cap Nasdaq 100 last week. This is when a stock makes a new 52-week high and then closes below the previous week's low.

Jason says this is a sign that momentum has been exhausted. The last time we saw a similar signal, in late 2014, stocks didn't return to new highs for nearly two months.

Stay long, but keep an eye on your trailing stops.

More on our big oil news...

If you read Friday's Digest, you know Porter dropped a bombshell...

For more than a decade now, he has been warning folks that "Peak Oil" was a myth... and correctly predicting that soaring U.S. oil production would cause oil prices to plunge lower than most folks believed possible.

But now, just as many folks are now talking about "Peak Oil demand," he's beginning to get bullish on oil prices for the first time in years.

To be clear, he isn't predicting that prices will shoot higher immediately. In fact, as you'll see in a moment, we could still see some more pain ahead. But we now believe the long-term trend is shifting from down to up once again... and prices could eventually rise to more than $500 per barrel before it all ends.

Again, we're holding a free educational webinar with our new senior resource analyst – Flavious Smith – this Wednesday evening, June 14, to explain it all.

If you're not yet familiar with Flavious, his résumé speaks for itself... He's a 35-year veteran of the oil and gas business who has worked on nearly all of the most important onshore oil and gas basins in the U.S., including the Anadarko, Appalachian, Denver-Julesburg, East Texas, Gulf Coast, Hugoton, Permian, Powder River, Uinta, Wind River, and the Williston Basins.

He led the development of both Marcellus and the Barnett Shale assets for EOG Resources (EOG). As longtime readers may recall, EOG is the "best of breed" firm that pioneered the use of the next-generation technologies that unlocked vast quantities of shale oil in the U.S.

He later served as the chief oil and gas officer and executive vice president at Forestar Group (FOR), building and leading the company's oil and gas operating segment.

And in 2014, Flavious became the managing partner and chief investment officer of The Flavious Smith Family Office, a multigenerational family office with investments in oil and gas, real estate, and aerospace.

In short, Flavious has the knowledge, experience, and network that can only be developed over decades of work at the top of the industry. And he'll now be sharing everything he has learned with Stansberry Research subscribers.

In advance of Wednesday night's event, we've asked him to introduce some of the big ideas he's closely following in the sector today. Here's Flavious...

No discussion of the long-term outlook for energy would be complete without a look at where we are now...

So today, I (Flavious) want to talk about what I see happening in the near term. And these days, just about everything you hear about oil is negative...

Prices have fallen from above $100 just a few years ago to as low as $27 last year. Hundreds of thousands of folks in the industry are out of work. More than 200 exploration and production ("E&P") and oil-services companies have gone belly up. And nearly $100 billion of energy debt has been wiped out.

But I'm probably not telling you anything you don't already know... The real question is... have we seen the worst of this crisis? Unfortunately, I don't think so...

While I'm incredibly bullish over the long term (more on that later), I'm afraid we could see another round of trouble in the near term...

Continued drilling and rising U.S. production will keep a lid on prices, as we've seen over the past year...

But at today's prices below $50 per barrel, all but the very best companies are still losing money. And many of them still carry a heck of lot of debt. I think we'll see another wave of bankruptcies before the bear market finally ends... and these high-cost, high-debt firms will lead the way.

But it's not all "doom and gloom." These troubles will finally set the stage for a real recovery... and this one will be led by the good ol' U.S. of A. I expect we'll see a $500 price tag before the next boom is over... and early investors in the right American companies will get filthy rich as they do. Stick with me, and I'll do my best to make sure you're one of them.

Tomorrow, I'll explain why I think prices are a lock to soar over the next several years. In the meantime, please take a moment to claim your seat to join me on Wednesday night. I promise you'll learn a ton, and it won't cost you a dime. I'll even give you one of my favorite long-term energy plays just for showing up. Click here to reserve your spot.

New 52-week highs (as of 6/9/17): AbbVie (ABBV), Aflac (AFL), AMETEK (AME), Morgan Stanley China A Share Fund (CAF), Coach (COH), iShares Select Dividend Fund (DVY), iShares Core S&P Small-Cap Fund (IJR), Johnson & Johnson (JNJ), 3M (MMM), Stanley Black & Decker (SWK), and Invesco High Income Trust II (VLT).

In today's mailbag, a longtime Chinese subscriber responds to David E's accusations... and several others weigh in on Porter's "Escher Economy." Send your notes to feedback@stansberryresearch.com.

"Hello Stansberry Research, I have had to chuckle a number of times at Steve's comments about China; specifically, with the WeChat application to which he was introduced. When you work and live in China, cell phone/smart phone communications are a necessary part of your work. There are not many who do not have a smartphone; they are cheap and work excellently. WeChat is a too easy conduit for nearly everything.

"Let me call my perspective 'from the bottom looking up.' For over two decades I have been working throughout the Asian shipyards with engineering, construction, and commissioning of offshore oil and gas facilities. A recent Chinese project was expedited through the use of WeChat for minute-by-minute group communications between the Chinese and Client Staff during construction and commissioning. A photo and comment quickly dispatched has an almost immediate response. And, it will translate for you! What an incredible tool. Hey Stansberry, what has taken you so long with Asia? I remember asking you a few years back when are you going to Asia.

"For David E – One can easily say that offshore oil and gas facility shipyards are not the most pleasant places; long days, high risk, demanding workmanship are a few basic day-to-day facts. How about non-stop, nasty, dangerous and grueling work to be exact. Compared to some of the other supposedly 'more humane' Asian locations, the Chinese men and women have a decent working environment. Thousands of men and women enter and leave on a daily basis; they are free to come and go. We have millions of man hours without a single safety incident. The shipyard canteen food is healthy and well prepared. Private bathrooms for thousands of working people... you have been working in an [office] too long. For every one of your negative comments, I can counter it with a positive example. Let us change your comment location to the USA and find many, if not worse, examples.

"Stansberry – David E has a very apparent lack of overall view of working in China. Admittedly he has some valid points but he has a significant amount of information totally skewed. He needs to come to China and actually work for a few years before he starts casting aspersions. Unfortunately, we get too many boneheads like him assigned to projects. They make life difficult for the project and the local community with their 'we are better than you' attitude. As some of the Brit Staff would say... what a wanker.

"Porter, your rebuttal was perfect and well-behaved. I also was trying not to foam at the mouth." – Paid-up Stansberry Alliance member Ong C.

"Porter, great Digest! There should be no doubt it... All of this ends badly. VERY badly." – Paid-up subscriber Jay O.

"Thank you Porter: Nobody else seems to be writing about this bizarre trend in macro economics. Time to batten the hatches to fare the coming wind." – Paid-up subscriber John C.

"In a traditional economy, one essentially borrows from the past when there is a need for money. One limits borrowing to what one can pay off from savings in an emergency, or at least what one has a rational chance of earning enough to pay the debt. In the Escher economy, one borrows from the future, believing if one can't earn the payback, one can still borrow enough to make payments. Debts pile up, and pile up. When enough of the millennial generation die without completing the payback, that economy will simply collapse. The collapse could come with little warning. Japan should lead the way in this. They have hidden their borrowing in government. So has the U.S, but not quite as much." – Paid-up subscriber Chuck B.

​"Porter, bless you for showing my favorite M. C. Escher print. It somehow captures everything from kicking over the moneychangers' table, to the Knights of Malta and their fortresses and their global coded banking system, to the Medici family with their great mansions and royal intermarriages and riches, to today's wordly investors joining the populace climbing the stairs of... what? you mean there are stairs down?... If your readers want to explore analogy and confusion, I recommend the book 'Gödel, Escher, Bach.'" – Paid-up subscriber Margaret H.

"No place better illustrates the Escher Economy than the State of California. The lefties in Sacramento have almost completely disarmed their citizens at a time when preparedness is critically important. California is taxing its working citizens into a deep hole. The State wants to control your every move – from water rights to hanging a new paddle fan. Next, you will have to get a permit to change a light bulb. Well, I packed up my family and left The People's Republic of California. You've heard it said that money goes where it is treated best. So do people – at least those who can move." – Paid-up subscriber Richard D.

"Hello Stansberry Folks, I've been reading your works for three years now and finally... it's... starting... to... sink... in. I think, for some reason, the Escher piece put it all together. And the picture is downright scary. Governments with unlimited printing power are investing in the free market. Governments, just like private investors, won't want to see their investments tank. When there's a downturn, governments will just print money to push the stocks back up. The market will respond by eating up the value of the dollar... till, in the end, it is worthless. $1,000,000 for a bag of fries at McDonalds.

"Porter is right- this is soooo jacked up. Steve is right- there will be a melt up. Bill Bonner is right- this will all end badly. P.J. is needed to find the humor in this slow moving train wreck, which will hurt middle class American families the most. Value investors will be right- but only in the end after they've watched Tesla soar to stupid heights on government funds and then crash only when the golden rope runs out. But they will have to suffer the indignity that for the moment and near future, research, knowledge, judgement and free market wisdom mean nothing against government printing power.

"Are we now in the new age of Politically Correct Investing, the 'post Escher' economy? Where all us outsiders can all become insiders since our government will tell us who they won't let crash? The government will tell us which way up is! And just like that, we've traded freedom for security. And you know what Ben Franklin thinks about folks who do that. I'm watching the 15 year wedge on gold. It's getting really close. Now I know which way it's going to break. UP." – Paid-up subscriber Guy B.

"If I see the stupid, ignorant, insulting phrase, 'There's no such thing as teaching...' ONE MORE TIME, I'm going to cancel my last Stansberry subscription!" – Paid-up subscriber Bill M.

Porter comment: Well... we'll miss you, Bill. Can't you just glaze past it?

Regards,

Justin Brill Baltimore, Maryland June 12, 2017