The 'Stealth' Bull Market Continues
'Something must give in oil'... Stockpiles are soaring again... What to do with Apple now... Europe is growing again... The 'stealth' bull market continues...
"Something must give in oil"...
So says a recent report from Bloomberg that should sound familiar to regular Digest readers.
Speculators are betting on higher crude prices like never before. In fact, the latest data show net speculative bets rose to another all-time record last week.
Yet oil price volatility has been plunging... Prices have basically gone nowhere since November.
It's a situation that simply cannot last... Sooner or later, prices will break out of this range, possibly violently. And the data continue to suggest the next move is likely to be to the downside...
Oil-services firm Baker Hughes reported the number of active U.S. oil rigs increased again last week for the fifth straight week...
The number of active rigs now stands at 597, the most since October 9, 2015. U.S. companies have added an incredible 120 rigs since oil-cartel OPEC agreed to cut production in November...
And rising rig counts are already pushing oil stockpiles higher again...
In fact, according to the latest data from the U.S. Energy Information Administration (EIA), crude inventories just hit a new all-time high of more than 518 million barrels, surpassing the previous high of 512 million barrels set in 2016.
More important, the EIA reports the number of days' worth of U.S. crude in storage is soaring again, too... It has already jumped back above 32 and is quickly closing in on the previous all-time record of 34 (also set last year).
The recent resurgence of U.S. shale oil production has already wiped out nearly all of last year's drawdown in supplies.
In other words, one of the biggest fundamental drivers of higher oil prices is quickly disappearing... And the glut could get even worse as today's more efficient shale producers continue to ramp up production.
If you're still long the oil sector, keep a close eye on your stops.
Elsewhere in the markets, Apple (AAPL) shares rallied to a new all-time high today...
Shares of the consumer-electronics giant traded above $136 following an upgrade from investment bank Morgan Stanley this morning...
As our colleague Scott Garliss noted in our real-time Stansberry Newswire service, Morgan Stanley raised its price target from $150 to $154, citing signs of growing Chinese demand. It also said shares could rise as high as $190 under its "bull case" scenario.
Regular readers know Ben Morris recommended Apple to his DailyWealth Trader subscribers nearly a year ago...
As we noted earlier this month, at the time, Apple shares had plunged on fears that the company's strong growth was ending.
But Ben told subscribers the stock was so cheap, it didn't matter. The market had already "priced in" these risks, meaning Apple was a fantastic investment even if it did stop growing. And he predicted shares could quickly trade back to new highs if the company's slowdown wasn't as bad as feared.
Again, Ben was exactly right... After three quarters of falling sales, Apple returned to growth last quarter. Shares have soared to new all-time highs... and subscribers who took his advice are up nearly 45% in less than a year so far.
Last week, Ben shared his latest thoughts on Apple...
He also answered a question many investors are likely wondering today. As he wrote in the February 14 issue of DailyWealth Trader...
The question, of course, is "What now?" We're up more than 40% on the position we opened last February. And we're holding that position with a 25% trailing stop.
Is it time to change our exit strategy? For folks without a position in Apple, has it gotten too expensive or too popular to trade safely? Today, I'll answer those questions...
First, Ben updated readers on Apple's current valuation...
Two of my favorite ways to measure whether a company is cheap or expensive are the EV/EBITDA ratio and the EV/FCF ratio. The EV/EBITDA ratio looks at a company's market value compared with its earnings... And the EV/FCF ratio looks at its market value compared with its free cash flow.
The chart below shows Apple's share price (top) along with the two valuation ratios (bottom). Right now, Apple trades with an EV/EBITDA ratio of 7.8 and an EV/FCF ratio of 10.2. Compared with the majority of the other businesses in the S&P 500, that's dirt-cheap. But as you can see, it's not so cheap relative to its own history...
Over the past five and 10 years, Apple traded with an average EV/EBITDA of 6.7 and 10.2, respectively. Over those same time spans, it traded with an EV/FCF of 8.2 and 11.7, respectively. So right now, Apple is less expensive than its 10-year averages but more expensive than its five-year averages. From this perspective, Apple is reasonably priced... But it's not a screaming bargain like it was in early 2016.
Next, he shared Apple's relative strength index ("RSI"), a technical measure of overbought and oversold conditions. More from the issue...
When an asset rises quickly and becomes overbought (with an RSI above 70), it's a good idea to be cautious. It may be due for a correction. When an asset drops hard and becomes oversold (with an RSI below 30), it can be a good idea to bet on a short-term rally.
It's far from a perfect measure of the stock's popularity... But it gives us a sense of what's happening, based on the extreme nature of the recent move. As you can see, Apple's stock has an RSI of 88. It's extremely overbought...
While Apple remains cheap compared with the broad market, it's no longer the "no brainer" it was last year...
Ben says folks who already own shares should continue to hold with a trailing stop. But if you missed the rally so far, you'll likely get a better buying opportunity down the road...
The stock could continue higher in the coming months... Apple's recent record-breaking quarter could keep enthusiasm high and shares rising. And if the company can grow slowly – or even simply stabilize – that rise could continue. But Apple could also drop 5% or 10% in the short term and fall out of overbought territory.
If you're already holding Apple shares, that's not enough of a reason to sell shares or change your exit strategy. I suggest you continue to hold with a 25% trailing stop.
If you don't hold Apple, though, the current conditions are reasons to be cautious. Now is not the time to open a new trade. Take care of your downside... And wait for a better setup.
Finally, we note the "stealth" rally in Europe continues...
You may not have noticed, but European stocks – as represented by the STOXX Europe 600 Index – closed at a new 52-week high last week. The broad index closed above the 370 level for the first time since December 2015...
Our colleague Steve Sjuggerud believes further gains are likely...
As we noted last month, Steve recently turned bullish on European stocks for the first time in years. They meet all three of his favorite investment criteria: They're cheap, they're hated, and they've started a new uptrend. And Steve believes nearly 10 years of underperformance versus U.S. stocks means they could soar triple digits as they play "catch-up" over the next few years.
Folks who took his advice are already up 6%.
Of course, there are never any guarantees in the market, but the latest data support his bullish thesis...
This morning, market-data firm IHS Markit reported eurozone business activity soared in February...
The firm's flash composite index of services and manufacturing jumped to a better than expected 56 this month. That's up from 54.4 in January, and its highest level in nearly six years. (Like many similar measures, readings above 50 indicate growth, while those below 50 indicate contraction.)
The individual measures for both Germany and France – Europe's two biggest economies – came in well above expectations, too. As IHS Markit's Chief Business Economist Chris Williamson noted in the accompanying release...
Job creation was the best seen for nine and a half years, order book growth picked up and business optimism moved higher, all boding well for the recovery to maintain strong momentum in coming months...
The big surprise was France, where the PMI inched above that of Germany for the first time since August 2012. Both countries look to be growing at rates equivalent to 0.6%-0.7% in the first quarter.
France's revival represents a much-needed broadening out of the region's recovery and bodes well for the eurozone's upturn to become more self-sustaining.
There is still a great deal of uncertainty ahead...
France's upcoming elections, in particular, promise to create volatility on par with last year's "Brexit" vote or the U.S. presidential election. (We'll take a closer look at these concerns in a future Digest.)
But after years of short-lived rallies based on little more than hope and central-bank stimulus, we're finally seeing signs that the European economy is improving. And that could be a massive tailwind for European stocks.
New 52-week highs (as of 2/20/17): none (markets were closed for Washington's Birthday).
Another busy day in the mailbag: More on our brand-new Stansberry Venture Value service... subscribers weigh in on Biogen's Alzheimer's drug and the used-car market... kudos for Stansberry's Credit Opportunities... a correction from an astute subscriber... and a complaint about the latest from P.J. O'Rourke. Send your notes to feedback@stansberryresearch.com. Good or bad, we read them all.
"I just wanted to enthusiastically endorse the sentiments expresses by fellow Alliance member and lifetime Venture subscriber, Jake B, in Friday's Digest. Hot on the heels of the new Portfolio Solutions product – which I believe will help an enormous number of your dedicated subscribers (including me) to use your research to more profitable effect – comes Venture Value, which feels like a culmination of much of the work that Stansberry has done to date, and both at no additional cost!
"You have to be impressed by such dedication to constantly adding value for clients. I regularly bless the day I discovered Stansberry Research in 2009, and know I would be utterly lost without them. Thanks to all and please keep up the good work!" – Paid-up Stansberry Alliance member Catherine Martens
"I was at a large medical conference this past fall. The neurologist giving a lecture on Updates in Alzheimer's spoke briefly about Biogen's drug trials. He was so excited, he was nearly hyperventilating while showing the PET scans noting the improvement due to their experimental drug. It's very exciting as an investor, but even more exciting as a physician." – Paid-up subscriber Brian S.
"Dear Porter, your past comments and those of again [Friday] regarding the vultures of debt swirling over the car rental companies, particularly Hertz and Avis, really hit home today in a personal way. Thanks to your articles on this subject I knew that prices for the used car market were dropping, but I was absolutely shocked by just how much. I started pricing a new Ford Fusion Platinum edition back in late December. Ford did not honor their word on lease options, so that deal fell through. Today, I resumed my efforts and was flabbergasted to learn that the residual value on this car dropped by a whopping $3,700 in that time period! Ouch! That is nearly 10% of the lease net capitalized cost. The Ford Fusion is one of the most popular vehicles in the market. Who wants to buy a new car in this market, when used car prices are only going to drop from here? Caveat emptor!" – Paid-up subscriber Steve K.
"Hi Porter et al, just wanted to send along some big kudos [for Stansberry's Credit Opportunities]. NRP just became my best performing recommendation of yours so far. Closed out both the bond and the stock for total profit of more than 81% in 3 months. Particularly impressive that this trounced the market indexes even though they've soared by 12-15% over the same period... " – Paid-up subscriber Chris
"Hi Gents: Your offices [were closed] Monday because of a holiday which you referred to as President's Day. If you check, I think you will find that it has been changed back to Washington's Birthday. At least that's how the NYSE describes it. Being British, we pay attention to these things. Thank you for the superlative work you do, the standards that you set, and above all, your unending desire to be the very best." – Paid-up subscriber Steve Previs
Porter comment: Steve, thanks so much, for your support and noticing our efforts to constantly improve.
"I think PJ's latest is really absurd. Not all Stansberry-ites are on the far right. For anyone left of center, there has been plenty to be outraged over. Every president is subject to 'sharp scrutiny from the news media, oversight from Congress, restraint by the judiciary – and public opinion.' Don't you believe power must always answer to the people?
"And what about the Debt? I thought we all believed that the enormous Debt was going to lead to The End of America. Are we really going to cheer on tax cuts before we know the truth about who pays how much, both individuals and corporations? I see most of the advantage of Trump policy going to the wealthy, not to reviving the animal spirits of the masses. The Trump vote was largely a protest. Now we have the anti-Trump voice. I think we need to listen to everyone." – Paid-up subscriber Tim D.
Regards,
Justin Brill
Baltimore, Maryland
February 21, 2017