Archives for April 2012

The energy sector's surge over the last two days may lead some to believe that the rush is now on.

Well, not so fast.

The markets pulled back this morning.

That's expected after a run up. But we need to understand the primary concerns moving forward.

Those are direction and conviction.

The energy sector got slammed worse than the overall market as a whole when it was going down, and it advanced quicker when it increased.

So, what will happen from this point onward?

The safe answer is to suggest mostly lateral movement over the next several months. And that is what most of the TV pundits are doing.

And as usual, they are going to miss another boat.

What has happened over the last two sessions, overlooking the anticipated pullback today, is the first wave in the next move up. It is, therefore, actually the end of a beginning cycle that will put both prices and volatility for energy in general – and for oil in particular – back on the radar.

No move up in oil is accomplished by regular, easy to calculate increments.

But one genuinely new factor has emerged.

And it will dictate more of our investment moves as we get further into this event-filled summer.

Riding the Wave of Anticipation

The return of instability, marked by price acceleration both up and down (but on aggregate leading to higher price levels), will be taking place over shorter periods.

This is an important new wrinkle to understand. It introduces a novel risk element into the equation while, at the same time, setting the stage for increasing profits. Those profits will develop over shorter time periods for the investor who is capable of riding ahead of this curve.

I call this development compression, and it has a pervasive impact on how you should approach to the market.

There are somewhere between two and three billion computers in the world right now.

And every last one is about to become obsolete.

Sorry, but yes, that goes for the computer you're using to read this.

It's a fundamental redesign of computing power that has been 50 years in the making.

You could probably manage to hang on to your current computer for a year or two, if you're patient.

But once your friends and neighbors start showing off the incredible speed and power of their new gadgets, or it turns out that incredible new software you've been eyeing won't run on your current computer, well, it's only a matter of time until you'll sign up this game-changing upgrade.

And consumer upgrades are just the beginning.

I predict this key breakthrough technology will soon have a dramatic impact on everything from artificial intelligence and robotics to medical research to aerospace to gaming and beyond.

It's very rare that a new technology truly represents a "sea change" across so many industries and applications. The last one of this enormity was the advent of the transistor in the late 1950s – the basis of modern electronics and undoubtedly the greatest invention of the 20th century.

And when this next breakthrough makes its debut on April 29, 2012, I believe it will deliver a bonanza payday for two very savvy companies and their investors.

High Tech is About to Enter a Whole New Dimension

We're still waiting for atomic computing – computing technology in which devices are made up of just a few molecules – to enter the realm of possibility. But that's likely a decade or more off.

In the meantime, 3D computing is the breakthrough that will dominate the next decade, taking computing to a level almost unimaginable.

Now, you may already know that America's high-tech economy depends on devices – called microprocessors – that are about the size and shape of postage stamps. Ever since their invention, these chips have fueled huge growth in computing as electronics have gotten ever smaller.

Let me explain the importance of small scale.

It's thanks to the steadily shrinking size of these chips that your smart phone today packs more punch than the huge computers NASA had when it put Neil Armstrong on the moon. If they hadn't gotten smaller, cell phones would still be the size of bricks. And you could forget about having wireless Internet, built-in video cameras, or music players in your phone.

As it turns out, there's a principle that explains – or really predicts – this continued exponential growth in semiconductor speed and power.

It's called Moore's Law. A Silicon Valley legend, Gordon Moore predicted that processing power would double roughly every two years.

That doubling has come as engineers kept finding new ways to put more transistors on a single chip. Transistors are the tiny gizmos that move and store data. Today, semiconductors now boast more than one billion transistors – ones so small you can't see them without a microscope.

And therein lies the problem. Chip makers are simply running out of real estate.

Right now the physical limit of integrated circuits stems from their basic design. Since they're flat, they only work in two dimensions. And that's been standing in the way of Moore's prediction.

But what if you could stack transistors on top of each other? You would greatly increase computing capacity. Think of it this way. A file cabinet holds a lot more information than a single sheet of paper.

As basic as that sounds, engineers have only just now figured out to go 3D and add "drawers" filled with transistors.

And one company is debuting its new chips this summer.

Most people seem to have a hard time understanding why the markets do what they do.

The only reason I don't is that I've been trading professionally for 30 years.

Not that I "got it" when I started out. I didn't. I had to learn. And I learned much of what I know the hard way. I made a lot of mistakes. I studied my mistakes, I still do, just as much as I study what moves markets and what I get right.

I'm always learning. That's because everything changes. You have to always take in new data, mesh it with recent data, layer it over the past, and not ever think you know for sure what's going to happen.

So, how do you do it? How do you understand what's going on with different markets?

Here's how I do it (and get it right a lot)…

It's First and Foremost About the "Big Picture"

I synthesize all the big goings-on, all the headline market-moving news and data points, and I watch and "listen" to how the markets react.

Money moves markets, but psychology moves money.

Markets are living things. They have feelings; their reactions are a direct reflection of the psychological impact reflected in the buying and selling of traders (first) and investors (distantly second) to the goings-on that participants believe will affect the decision-making of other market participants.