The Next Big Ride in the Market

  • Glum stats — and all useless
  • What a ride on this stock!
  • Plus, the coming shift in expectations…

Oh dear. Pity the poor fool who buys into the current pessimism. They’re going to miss out on the potential to make a lot of money — if my reading of the tea leaves is correct.

Look at the papers today. The IMF has cut the forecast for Australian growth. House prices are ‘expected’ to fall sharply. Loans to property investors are still down.

It’s enough to have you feeling glum about the world.

Why, you’re not going to get sucked into the negativity, are you?

These factors don’t necessarily matter if you’re looking for stock market ideas.

For example, a good chunk of the stocks on my recommended buy list don’t even operate in Australia.

They’re off cashing in on markets all over the world.

And now’s the time to be backing them — and others. Today’s Profit Watch explains why…

I can say all this with some confidence. Earlier in the week, I recommended closing a position to my paying subscribers.

The gain was 152% in under a year.

That’s not a boast. Some ideas work better than others. But it does show you that making money in the stock market is a different thing to assessing the general economy.

Who really cares whether the IMF thinks Australia’s growth is going to be 2.1% instead of 2.8%?

Does this help you find a good idea on the ASX, or lead you to smart managers who’ve been successful before or are discovering a huge market opening up, like cannabis?

No, it does not.

I care a lot more about those factors than a forecast based off a flawed measure of the economy.

I can tell you: Momentum is coming back to the market. I can see it across my positions. 2018 was tough. Things are beginning to rumble.

2019 is also a perfect example of how counterintuitive the market can be…

Who would’ve thunk it?

Consider: All last year, we heard how China was weakening. Trump was battering the place with tariffs. There were sky-high debts.

That was the ‘macro’ take.

The headlines were bad enough to easily conclude that the last place to look for a short-term punt would be iron ore.

Except iron ore has flown up this year, smashing all expectations.

Look at the ride shareholders in Mount Gibson Iron [ASX:MGX] have had in 2019…

Mount Gibson Iron MGX share price

Source: Optuma

Doesn’t that look like fun?!

Now, granted, iron ore is getting a boost from the accident in Brazil and now a cyclone in Western Australia.

But that’s the nature of the market. It’s the changes in the status quo that shift the pieces around.

And you’ll never catch a move like this if you aren’t ready and watching in the first place.

I can see the same kind of pressure building in another market, too…

The time to prepare is NOW

It’s the oil market.

It’s so delicately balanced right now that if we get a major loss of supply, oil stocks could take off in the same way as Mount Gibson.

Just this morning, I noticed a significant story. Reuters reports[1] that US shale drillers are looking to cut staff.

One company cited in the piece has not done this since…1998!

This is happening because investors want the shale companies to start making money, instead of pumping more oil.

Previously, a lot of managers and directors here were incentivised on hitting higher production targets.

Wall Street wants profits.

Let me remind you that the industry is cutting these jobs despite the fact that oil is rising!

The American benchmark — West Texas Intermediate, or WTI’ — was US$45 at the beginning of the year. It’s now $64.

Presumably, this is because shale companies are also finding capital harder to come by. Energy companies raised US$22 billion in 2018, half of the total in 2016[2].

That’s less money to reinvest in future drilling.

Why do you care?

The US Energy Information Administration is projecting US oil production to go as high as 12 million barrels per day in 2019 and 13 million in 2020.

It’s becoming more likely that this target will not be hit.

That means there could be a major shift in the next 12 months around market expectations for the price of oil.

And if we get a wildcard — like what’s happened in iron ore this year — oil stocks could fly up in the same way. 

Look at the chart above. Wouldn’t it have been nice to know the best iron ore stock to back before the price surge?

I suggest you start thinking this way about oil. My latest report has two such ideas. Click here to get ready.

Best wishes,

Callum Newman,
Editor, Profit Watch

[1] ‘U.S. Shale Producers Turn to Job Cuts…’, Reuters, April 10, 2019.

[2] ‘Frackers Face Harsh Reality…’, The Wall Street Journal, Feb. 24, 2019.