Steve Sjuggerud has been keeping close tabs on oil prices...
In recent months, Steve has highlighted several bearish signs for crude oil, including extreme sentiment among oil speculators and persistently bullish behavior in energy stocks.
This week, he shared another. As he wrote in his latest True Wealth Systems Review of Market Extremes...
Oil prices have crashed in recent weeks... They're down nearly $10 a barrel in the past month. And our short oil trade is up big. We're sitting on 33% profits, as I write. But our thesis hasn't changed... Oil prices can move much lower from here.
You see, oil rig counts continue to increase. They just hit their longest streak of increases in three decades. This tells us supply and demand is still hurting oil. And lower prices are likely.
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As Steve explained, the number of active oil rigs has now increased for 22 straight weeks. This hasn't happened in at least 30 years. It suggests U.S. oil production will continue to soar. More from the update...
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More oil rigs working means more oil is flooding the market. More oil supply alongside consistent demand means that the price will likely keep going down. Rig counts have risen dramatically... and they're showing no signs of stopping.
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Worse, Steve notes that oil inventories remain stubbornly high...
On top of those increasing rig counts, oil inventories continue to approach record highs. In other words, we have a glut of oil... and drillers are fixated on pulling more and more out of the ground.
Today's situation doesn't differ much from what we saw back in March... when we first recommended shorting oil. The supply-and-demand equation points to lower prices. And sentiment is still in our favor.
So while we're already up big on our short oil trade, the best could be yet to come. The smart bet today is to stay short.
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Meanwhile, Steve's bold China prediction is now a reality...
On Tuesday afternoon, global index provider MSCI officially announced it would add domestic Chinese stocks – known as "A-shares" – to its emerging markets index.
This is a big deal. As news service Reuters reported following the announcement...
China's stocks took a major step toward global acceptance, finally winning a long campaign for inclusion in a leading emerging markets benchmark, in what was seen as a milestone for global investing...
Inclusion in the index marks a key victory for the Chinese government, which has been working steadily over the past few years to open up its capital markets, investors said.
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Of course, this should sound familiar to regular
DailyWealth readers...
This afternoon, MSCI – the leader in global stock market indexes – will announce the results of its annual meeting. MSCI holds this meeting to decide on any changes to its index weightings.
Normally, nobody cares... But this time around, the changes should be historic. And they will likely affect you... I predict – for the first time in history – MSCI will finally include Chinese A-shares in its global indexes.
This is a big change. And it likely affects you, even if you don't realize it. You are about to start owning local Chinese stocks in your pension fund – for the first time ever.
You see, right now, roughly zero percent of American retirement assets are invested in local Chinese A-shares. But that will all change when MSCI includes local Chinese stocks in its indexes.
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Steve didn't stop there, though... For several months, he has also told readers exactly
how this scenario would likely play out. As he explained in the May 7 Stansberry Digest Masters Series...
If MSCI announces a plan to include China in its emerging markets index, the first shift will likely happen a year later... MSCI wants to give these pension funds PLENTY of advance notice that they will need to be buying Chinese stocks.
It looks like MSCI will start out with baby steps as well... It will likely begin with 5% of the long-term plan for inclusion. That doesn't mean adding a 5% allocation to Chinese stocks. That means it wants to add 1/20th of its final allocation to China – a small number.
That means that in June 2018, the MSCI Emerging Markets Index will likely have roughly 27.6% of its total holdings in China – 21.5% in Hong Kong, 5% in China overseas listings, and 1.1% in Chinese A-shares.
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Incredibly, MSCI's plan looks
nearly identical to Steve's prediction. As financial-news network CNBC reported this week...
MSCI will take 222 of the biggest names in their MSCI China A International Index (out of 448), and include them in their relevant global indexes in the middle of next year. These are the largest and most liquid names in the China mainland market.
Rather than giving a 100% market capitalization weighting to each stock, they are giving each stock an initial weighting of only 5% of its market cap. That will greatly reduce the initial weighting of the China mainland stocks...
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And just as Steve expected, MSCI said it would continue to increase the weighting of these companies – assuming the Chinese government keeps meeting its expectations – all the way up to 100%. It also said it would consider adding more Chinese A-shares after that.
While Steve's particularly optimistic about what's happening in China, he also remains bullish on U.S. stocks...
In fact, he expects to see a "Melt Up" – an explosive final "inning" of the long bull market –
that pushes stocks to unbelievable new highs.
However, this week, Steve told us something has changed about his Melt Up thesis...
In short, he says a new and unexpected "twist" has just emerged. While we can't share all the details yet, we can tell you that Steve is preparing a briefing to explain it all.
Good investing,
Justin Brill
