Speculation over next-generation smartphones, product launches, sales projections and market share has dominated the discussion. Will Samsung’s new line of phones be able to compete with Apple? Will the new BlackBerry revive its long-suffering parent company? Can Apple deliver a new iPhone that can win back younger customers?

If you’re a tech junkie, these reports can be fun to read. But unfortunately, many novice market watchers use this type of information (and even unconfirmed rumors) to trade stocks. That’s a terrible — and potentially costly — way to play the markets.

Instead of following the tech blogs for news updates, savvy traders should be watching the charts and ignoring the media hype.

Today, I’m going to break down two popular tech stocks, Apple (NASDAQ:AAPL) and BlackBerry (NASDAQ:BBRY). Each chart is sending out important signals — signals that might be contrary to what you might have been reading about each of these companies in the news.

First, let’s check out the newly rebranded BlackBerry:

BlackBerry stock started to perk up back in late September after being trapped in a vicious, multiyear downtrend since 2008. Throughout the fall, the stock offered several solid risk/reward setups on the long side as rumors started swirling around the BlackBerry Z10 and its new, modernized operating system. Unfortunately, as the stock’s momentum increased, so did new reports of BlackBerry’s potential turnaround. New investors swarmed into the stock as the product launch approached…

Of course, this is exactly when the stock started to top out. By early March, BBRY had violated support of its five-month uptrend. Now we’re witnessing the beginnings of an unsuccessful attempt to regain momentum as the stock slips below its 50-day moving average.

Of course, negative analyst notes and reports of soft launch sales are giving investors an excuse to sell today. But the real actionable news was already baked into the chart.

What about Apple?

Here’s a chart from the exact same time period as our BBRY example. But Apple is showing us a completely opposite setup.

You know how this story goes. As Apple fell from its highs, it began to receive more intense scrutiny from analysts and the financial media. Investors started to call into question Apple’s management team, their ability to innovate without Steve Jobs’ influence and the lack of any recent revolutionary product launches.

Momentum investors and latecomers left the stock in droves. The race was on to find the next hot stock in mobile communication devices. So it’s no coincidence that BlackBerry (and plenty of tech gossip) was there to fill the void.

However, now that BlackBerry’s big Z10 launch isn’t exactly wowing the masses, we’re beginning to see new life in AAPL shares. The stock has just recently broken above its 50-day moving average and downtrending resistance. While everyone was paying attention to Samsung and BlackBerry media hype, Apple stock was quietly beginning to repair the damage that has received so much attention over the past six months.

Apple isn’t moving higher because of improving fundamentals or a brand-new iPhone or any of the so-called “catalysts” that market watchers tend to look for. You’re not going to find any tradable information on the tech blogs about this recovery in AAPL shares. All of the information you need is in the charts.

That’s how you cut through the misinformation in a very, very noisy and popular sector. A picture is worth a thousand bucks if you’re trading. Cut through the noise and stick with what works…

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Chart Wars: AAPL vs. BBRY was originally featured in the Tomorrow In Review.

In the world of finance, “options” isn’t just a word for your investment choices — options are financial instruments that Wall Street gurus and individual investors can use to make substantial gains. Most people don’t use options — in fact, most individual investors don’t understand how they work — but we can solve the mystery for you so you can profit…

What Are Options?

Options are investments that give you the ability to buy or sell a specific stock at a specific price (the strike price). In other words, buying an option gives you the ability to buy or sell a stock for a locked-in price…I’ll get into the specifics in a minute.

Options are derivatives, which means that their values are tied to other securities…in this case, stocks. So when a company’s stock price changes, so will the prices of the stock’s options.

Just as with stocks, you can buy and sell options through your online broker. It’s important to keep in mind, though, that your broker likely uses a different commission structure for buying or selling options than they do for stocks — you’ll have to ask to find out.

Unlike stocks, however, the company doesn’t issue the options that trade on the open market. Instead, options are issued (or written) by other traders. That doesn’t mean that you’re opening yourself up to extra risk (known as counterparty risk) by buying an option from a small-time trader — major options clearinghouses are on the hook for trades that go sour, so they have strict rules in place to keep risks minimized. Since options were introduced, there has never been a failure of an options clearinghouse in the U.S.

What Kinds of Options Are out There?

There are basically two different kinds of options out there — call options and put options. Call options give the owner the right to buy shares of a stock at a predetermined price, and put options give the owner the right to sell them at a predetermined price.

If you think that Apple (AAPL:NASDAQ) is going to see $500 again in the near term, you could buy a call option with a strike price of $450 and own the right to buy Apple at $450 after it hits $500 — that’s a nice locked-in gain!

If your hunch was wrong and Apple slides to $400, you could choose not to buy the shares at $450 and be out only what you paid for the option. Currently, AAPL $450 April 2013 calls will run you $21.70. That price (or premium) factors in the probability that shares of Apple will trade above $450 before the options expire.

As I mentioned, put options give you the right to sell shares of a stock you believe will decrease in value, but, in this case, at a higher price. Going back to the same example…

If you think Apple’s set for a fall, you could buy a put option with that same $450 strike price and own the right to sell Apple shares at $450 per share after it falls. As I write, those $450 puts for April currently cost $17.55. Because option prices are a fraction of the price of the underlying stock, options provide magnified risk/reward trade-offs. That means that if you make 10% on shares, you could potentially make 100% or more by trading options instead.

Remember, though, options give you the right, not the obligation to buy or sell a stock at a specific price…You’re not required to exercise the option. If a stock doesn’t end up doing what you expected, you can still just let your options expire and be out only the price you paid for the options themselves.

That’s significant — unlike other complex investments, it means that you can’t lose any more than you invest with options.

Option prices also aren’t stagnant. If you buy an option and watch it climb in value, you can sell it long before the option expires and you’re forced to either exercise it or let it expire worthless.

Who Uses Options?

These days, everybody uses options — and for good reason…

Options are a great way to hedge, or insure, your investments against downside. If you like Apple for a long-term play, but aren’t so sure about its short-term risks, you can buy AAPL stock alongside put options for the company. That way, if the stock does take a hit, you can offset your losses on the stock with the money you make on the options.

If you end up not needing the option play, you’re still out only the price of the option. Just consider that cost an insurance premium for your portfolio.

In the big leagues of investing, plenty of portfolio managers use options to hedge against losses, but don’t think that only financial companies use hedging!

Southwest Airlines (NYSE:LUV) has long been a favorite stock in an industry that’s seen crippling losses. How’d they do it? Southwest saved their skin by making prescient investments in derivatives that were tied to oil prices. Southwest limited their exposure to soaring jet fuel prices while other airlines saw their margins collapse.

An Experiment You Could Profit From

Options are a stellar choice for investors who want to ramp up their risk/reward trade-off but still keep their risks limited. That said, they do have a steep learning curve — and this basic primer barely scratches the surface of what you need to know to trade them successfully. But I want to change that…

Next month, I’ll be conducting an exciting options trading experiment.

It’s designed to give you a crash course on options investing, and it’s completely free. All I ask is that you help me prove to my publisher that I can teach any investor how to effectively trade options in just a single week. The experiment may sound familiar to some Trend Playbook readers — we did the same thing with trading stocks in late 2012, taking the average experiment participant from earning a C on our trading quiz to earning an A.

The options experiment doesn’t start until next month. I’ll send you instructions on how you can join the test group here in Trend Playbook when we’re closer to going live with it. In the meantime, send me any questions you have on options to trendplaybook@agorafinancial.com

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An Introduction to Options was originally featured in the Tomorrow In Review.

The idea that a simple inoculation could eradicate cancer might sound ludicrous. Sometimes however, when something seems too good to be true, it might actually turn out to be very true. Scientists have been working for decades to find the wonder jab that could thwart all cancers. That day has not yet arrived, but it may be drawing near.

Simply put, vaccines boost the immune system’s natural ability to protect the body against “foreign invaders,” such as bacteria, viruses or parasites. Traditional vaccines usually contain weakened versions of microbes that are able to stimulate a specific immune response.

When the immune system encounters these substances through vaccination, it responds to them and eliminates them from the body. The immune system also develops a memory of the invaders so that it will act quickly to protect the body against them in case of a future encounter.

In other words, the philosophy inspiring the science of immunology is like that old Chinese adage, “Give a man a fish and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.” And this philosophy has been in play ever since 1796, when Edward Jenner inoculated an 8-year-old boy with pus from a cowpox blister in 1796 to protect the child against smallpox.

Prophylactic vaccines that prevent some cancers caused by infectious agents already exist. The US Food and Drug Administration (FDA) has approved vaccines against the hepatitis B virus that can cause liver cancer, and vaccines against the human papillomavirus types 16 and 18 that are responsible for about 70 percent of cervical cancers.

However, only one in six cancers worldwide are caused by preventable or treatable infections. Other cancers derive from genetic or lifestyle factors (tobacco use, diet, and physical activity, etc.), and/or environmental exposures to different types of chemicals or radiations. Therefore, cancer researchers are trying to develop a new generation of vaccines that could cure any cancer, including those that are not caused by an infectious agent.

The goal of the cancer vaccines in development is to enable the immune system to recognize cancer cells as foreign, or “non-self,” agents, rather than as harmless “self” agents. Foreign invaders such as viruses or bacteria have proteins on their outer surfaces called antigens that are not normally found in the human body. The adaptive immune system recognizes foreign antigens as “non-self” and proceeds to destroy them. By contrast, normal cells in the body have antigens that identify themselves as “self.” Self-antigens tell the immune system that these cells are not a threat and should not be attacked. Cancer cells carry both self-antigens and non-self, cancer-associated antigens. So they confuse the immune system with mixed signals.

A cancerous cell is a normal self-antigen-carrying cell gone wild. It divides, grows and proliferates uncontrollably. In a state of “madness,” the cancerous cell also starts to produce new non-self antigens that the immune system recognizes as a threat. But like a concerned parent faced with a teenager spinning out of control, the immune system resists the temptation to kick the troubled kid out of the house because it feels that its own once-sweet baby is still hiding in there. The immune system reacts, but weakly or inappropriately, and it does not manage to clear the body of cancer cells.

Therefore, the goal of a cancer vaccine is to overload the immune system with the information, “Bad antigen! Kill!” Many cancer vaccines send that message very well, but they do not always send the message long enough for the immune system to “remember” it. In some cases, the immune system recognizes the injected antigens as foreign and destroys them rapidly, before it can begin attacking the cancer cells efficiently. Without any further stimulation, the immune system can return to its normal (pre-vaccine) state of activity – i.e., it ignores cancer cells.

Therefore, Scientists have looked for a way to provide a steady supply of antigens. DNA vaccines may be the answer. DNA contains the genetic code for all the proteins a cell can make, including antigens. So scientists could easily synthetize in vitro pieces of DNA that contain the genetic instructions for any known cancer-associated antigens. This DNA could be injected alone into a patient as a “naked nucleic acid” vaccine, or inserted into a harmless virus.

If these vaccines performed as designed, the injected DNA would be taken up by cells that would begin to manufacture enough of the tumor-associated antigens to stimulate a very strong and enduring immune response.

The National Cancer Institute reports over 15 antigen-based cancer vaccines that were proven safe and effective on a small scale and are now being tested on a large number of patients in phase III clinical trials. Most of the new generation DNA-based vaccines are still in phase I or II trials. But they are progressing through the ranks. For example, PROSTVAC, a DNA vaccine against advanced prostate cancer developed by Bavarian Nordic has shown very encouraging results in phase II trials and patients are now being enrolled to start a large scale phase III trial. Many DNA vaccines should soon follow PROSTVAC’s lead.

Vaccines represent a relatively new approach to fighting the spread of cancer. As a result, they have the potential to change the way we treat cancer worldwide and represent some of the most exciting new areas of medicine we’ve seen in a while. Now that they have entered phase III clinical trials, the possibility that we might one day be able to get our cancer shot together with our flu shot seems much more plausible.

Best,

Severine Kirchner, PhD,

Cells Gone Wild! was originally featured in the Tomorrow In Review.

First, let’s return to Mendeleev and his missing elements. Why were there gaps in his table? Did the Russian scientist make errors in arranging the elements? Or, based on the gaps, were these apparently “missing elements” key to another aspect of chemistry?

Mendeleev was perplexed, but he also anticipated that something novel would happen. Back in those days, chemistry was a fast-evolving field of science, with many great minds applied to the hardest challenges. (It still is, actually.) Somewhere, someone would figure out the reason for the gaps in Mendeleev’s table.

Mendeleev left space in his table of the elements. He predicted that the missing substances were likely somewhere out in nature, but yet to be discovered and isolated. Indeed, in 1871, Mendeleev postulated the existence of a yet-undiscovered element. He named it “eka-aluminium” (using the Russian form of spelling) because of its proximity to aluminum on his proto periodic table.

A few years later, in 1875, a French scientist, Paul Emile Lecoq de Boisbaudran, discovered the substance that had eluded Mendeleev and named it gallium — after Gaul (Gallia, in Latin), the ancient Roman name of what is now France.

De Boisbaudran had a hard time isolating his first samples of gallium. In one of his early efforts, de Boisbaudran used nearly 700 pounds of zinc-bearing sphalerite ore from the Pyrenees mountains to isolate about 1 gram of gallium. It was quite a messy, complex process.

Gallium Today

Since the 1870s, isolating gallium has become an easier task. Today, gallium is produced as a byproduct of aluminum and zinc production. Aluminum and zinc are — no surprise to the chemists out there — atomic neighbors of gallium on our modern periodic chart. Gallium is also right next to two other elements with intriguing properties, indium and germanium.

Still, gallium is not at all a common element these days. It’s scarce, and its uses are high-end. Such as? Well, there’s a compound called gallium arsenide (GaAs), which is a semiconductor. And now allow me to get technical for a moment.

Basically, semiconductors conduct electricity, but not in an open manner, such as how copper wire conducts electricity to, say, a light bulb. With a copper wire, electricity moves like a car driving down a smooth street, with no bumps. It’s just a nice, clean ride through the wire. Put another way, nothing interesting happens to the electrons as they move.

But with semiconductors? It’s like driving down a street covered with speed bumps interspersed with potholes. You bump up, you bump down. You feel the ride. That’s sort of what happens to electricity in a semiconductor as well, except it’s a good thing for electrical and electronic engineers that the ride is so bumpy. That’s the trick, in fact.

Semiconductors move current through things called “holes,” or charge carriers. Basically, you can fill a hole with an electron or leave it empty. Got that? It’s full or empty. Or consider a light switch that’s on or off. Mathematically, it’s a one (“1”) or a zero (“0”). Do you see where this is going?

Actually, it’s going into the realm of quantum physics, but for our purposes, let’s just understand that semiconductors control binary digital computing. Semiconductors wind up in all manner of computer chips, microwave frequency integrated circuits (ICs), monolithic microwave ICs, infrared light-emitting diodes, solar cells and lasers. Most of the world’s semiconductors are made out of silicon, but not all.

Optical Electronics in America

Back in the 1980s, a brilliant scientist named Geoffrey Taylor worked at Bell Labs in New Jersey. Among other things, he researched optical systems and semiconductors, including the above-noted gallium arsenide. It’s a long story, but Dr. Taylor left Bell Labs and took a job at the University of Connecticut, at Storrs.

Along the way, Dr. Taylor scrounged much of his former equipment from Bell Labs and hauled it to Storrs. He also picked up all manner of equipment from other corporate and government labs when they downsized during the serial tech crashes of the past two decades. In essence, Dr. Taylor has a full-up semiconductor materials research lab and fabrication center at UConn. (I’ve been there.)

Dr. Taylor then put together a team based on optical technologies through which to pursue his research.

A Busted Solar Power Play

A few years ago, they began to work on solar power systems using gallium arsenide. Basically, with solar, the sunlight hits the panel and the photons — the light particles — go into the semiconductor material. The photons stimulate electricity, which is why solar panels generate power. Light goes in, electricity comes out. So far, so good.

It’s a long story, but you likely know that the solar space has developed a reputation for uneconomic business efforts — Solyndra and all. So it wasn’t too long before Dr. Taylor and colleagues realized that they were barking up the wrong tree, businesswise. In terms of making things work, the solar business is just too competitive for some cutting-edge ideas just now, what with the Chinese flooding the world with super-cheap materials and equipment. Still, the team had their gallium arsenide material and they learned a few things from the solar research.

Hey, a Laser Beam!

Like what, you wonder? Well, forgive me if I oversimplify it, because — I assure you — it’s truly complex quantum science. Instead of the “light goes in, electricity comes out” pathway, what if you reverse the flow? That is, put electricity into the gallium arsenide and out comes light. Hey, that sounds like a laser beam. And what a laser beam!

Fast-forward to now. The team has evolved the idea by a country mile. But the truth is that the team is still more in a research mode.

This is a seriously high-tech idea, with all the issues and risks that come with such things.

Using Light for New Purposes

They’ve developed a next-generation gallium arsenide semiconductor device, incorporating a technology called POET (Planar Opto Electronic Technology). POET allows the integration of optics and electronics on a single chip, which is the breakthrough.

So what are we talking about? With conventional semiconductors, like silicon, you can move electrons, but not photons (light particles), which are much smaller. But by developing the ability to handle photons, with gallium arsenide, you’re opening up entirely new capabilities.

First, with photons, you can now move down truly to the level of quantum computing — literally at the atomic level. This is important, because modern computing is at the edge of capabilities with electrons and bulky old silicon. If you know what “Moore’s law” is — long story — we’re about to see the last chapter written. So gallium arsenide is the next great leap for technology, setting computing up for the next 50 years or so.

According to Dr. Taylor, POET is a “disruptive technology” within many commercial and government markets. It overcomes critical problems for all manner of tasks, starting with the physical size and energy limitations of silicon chips.

In fact, the benefits of POET are analogous to what occurred with the first silicon integrated circuits, except now we see the improvement down at the atomic level, versus the much larger scales of silicon technology.

In practice, POET eliminates connectors, solder joints, assembly and multiple packaging steps. It decreases the size of a computer chip, as well as cost, complexity and power consumption. How about dramatically smaller supercomputers, which don’t require air conditioners the size of a railway car?

At the same time, POET technology is versatile. It’s possible to integrate POET with incumbent silicon tech. Thus, while POET is revolutionary, it’s also compatible with much of the world’s existing capabilities. In other words, POET does not require a brand-new “tech ecosystem” if it is to gain market traction.

Military Apps — Even Vampire-Killers

POET immediately addresses the requirements of numerous military development and procurement programs for improved sensors, faster and more secure communications, improved memory and storage and overall computing power. There’s no end to the transformation in computing power, imaging, target definition, signals intelligence and more that we could see from this.

What else? Well, looking out into the future, POET chips can generate coherent light beams — like laser light — with very small inputs of power. So imagine, say, a ship with a phased array radar that can lock onto a fast-moving object while a “smart skin” on the hull literally weaponizes and emits laser light precisely onto the target. Star Trek, anyone? Well, we’re not there yet, but people are working on it. It’s a vampire killer. Eventually.

Mendeleev’s “missing element” now forms the foundation to a host of new breakthroughs that can revolutionize the world of digital computing and change the nature of weaponry and war.

The tech is so new that, as I’ve described, it’s scarcely out of the lab. Where will it go? Well, if you had asked that question about, say, silicon chips, back in the 1960s or 1970s, could you have envisioned what is happening today? This idea can go anywhere, and I suspect that means it will go far.

Best,
Byron King

Getting Rich from Military Technology, Part II was originally featured in the Tomorrow In Review.

Trade execution is one of the most mysterious parts of the investing world — few individual investors concern themselves with what’s happening to their stocks after they click the “Order” button.

Here’s a look at four trade execution blunders that you need to avoid.

First, let me explain a couple things about trade execution. Every time you execute a trade — that is, buy or sell any financial instruments — you’re initiating a complex series of events designed to ensure that your order gets filled quickly and efficiently. But don’t think that the order you submit on your broker’s website starts flashing on screens at the NYSE as soon as you submit it. Instead, your broker acts as an intermediary, deciding which of their channels they’ll task with filling your order.

That means that all brokers aren’t created equal — and when it comes to trade execution, your mileage may vary.

Two investors could execute an order at the exact same time and get filled at completely different stock prices, depending on the latency at the broker and the method they use to get the shares you requested. For that reason, which broker you choose is a big deal — read reviews at a site like Investimonials.com/brokers/ and feel comfortable shopping around.

But that’s not to say that brokers are allowed to drag their feet in filling an order. The SEC requires that brokers provide their clients with “best execution,” which essentially means that a broker needs to fill your order at the best price possible at the time.

Even with duty of best execution, it’s easy to fall victim to one of four cardinal trading blunders. Here’s everything you need to know to avoid them…

1. Don’t Bother With Extended-Hours Trades

While the markets are open from 9:30 a.m. until 4:00 p.m. Eastern, the advent of extended hours trading in the late 1990s has helped traders extend their profit-taking opportunities before and after the traditional trading session. But as tempting as it may be to take a position in a stellar stock late, after-hours (AH) and pre-market trading should generally be avoided.

The main reason for that is a lack of liquidity: With fewer market participants buying and selling shares, a smaller volume of trades can have a disproportionately large impact on a stock’s share price. And because professional and institutional investors avoid extended-hours trading, price discipline generally goes out the door when the market’s not in session — a factor that’s led professionals to refer to after-hours trading as “amateur hour” trading.

Generally, extended sessions give a good indicator of the direction of the day’s trades, but they’re often way off on the size of a move. Wait until regular session before buying or selling to avoid the price swings and volatility. In fact, unless I’m urgently exiting a position, I don’t like to trade within a half hour of the market’s open or close.

2. Don’t Use a Market Order on an Illiquid Stock

You’ve probably come across an illiquid stock or two — they can provide some exciting trading opportunities, but they also come with their share of unique considerations. Whether it’s because of their small size, an underappreciated business model or a lack of institutional coverage, when shares of a company aren’t being traded in large numbers, the potential for volatile price action is there.

To be sure, illiquid stocks can present some of the best investments out there — after all, who wouldn’t want to get into a smart position before the rest of Wall Street catches on? But if you’re buying shares of an illiquid company, don’t you dare use a market order.

Market orders are essentially orders to buy shares of a stock at market price, whatever that may be. And although market price may be tightly bounded in a stock like General Electric (NYSE:GE), the prices you see when you buy shares can move rapidly with small, thinly traded penny stocks. Since a market order is all but guaranteed to execute, the chances of getting filled at a bad price are very unappealing. Use a limit order instead — while you may not get filled right away, you’ll have control over the price you pay.

3. Don’t Use Bad Data Sources

It may seem surprising that investors use free investment research websites like Google Finance or MSN Money to get their trading information, but it happens regularly. While these sites are absolutely great for getting quotes on the fly, some data sources are often delayed, and they’re not recommended for trade decision-making. The kicker is that as an investor, odds are that you have a premium stock research tool available to you free of charge: your broker’s website.

Use real-time services from your broker when making decisions that put your hard-earned money on the line.

4. Don’t Trade Small Order Sizes

When you’re deciding how many shares of a stock you want to buy, don’t make the critical mistake of buying too few.

That’s because, with commissions, the amount of gains you need to make just to break even could be unrealistic. If your broker charges $10 per trade, you’re paying $20 to buy a stock and then sell it off when the time is right (round-trip) — that means that if you invest $100 in that stock, you need to make at least 20% gains just to break even! Increase that investment to $500 and you need to make only more than 4% to record a profit on the stock. At $1,000, your stock needs to make only 2% to be a winner. While investing a tiny position might seem like a financially prudent thing to do, it could actually end up being an expensive mistake.

With fickle markets swinging stocks enough these days, don’t predispose your positions to losses — analyze your trade size before you place it.

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Never Make These 4 Trade Execution Mistakes Again was originally featured in the Tomorrow In Review.

We were out on a bombing range, flying a racecourse pattern, taking turns rolling inbound on a practice stretch. We would line up, release our weapons one at a time and then get graded on bombing accuracy. Eventually, I made a radio call and said, “We’re Winchester, bingo, RTB Fallon.”

Huh? What did I say? Basically, I told the controller that we had dropped all our bombs, were out of ammunition (“Winchester”), were low on fuel (“bingo”) and had to return to base (“RTB”) at Fallon. The idea in Navy communications is that you want to keep it short and pack a lot of information into your calls.

The Vampire Call

Out on the front lines — out where the gray ships deploy — there are all manner of other coded words specific to the deployment area and any perceived threats. There’s one call, however, that strikes fear into everyone’s heart… the “vampire” alert.

A radio call of “Vampire, vampire” does NOT mean that there’s a teenage movie about underage girls who fall in love with guys from Transylvania on the ship’s TV system.

No, the “vampire” call means that there’s a missile inbound, moving at high speed toward the aircraft carrier or its battle group. Somebody, somewhere has shot a missile at your floating home away from home. In the days of the Cold War, the battle-space problem was Soviet missiles.

Out in the Western Pacific, where I deployed, the Russians typically sent out swarms of gigantic Tu-95 Bear bombers, which carried missiles the size of small airliners.

It used to threaten the fleet with long-range missiles.
Now, this Bear is a museum piece.
BWK Photo, Monino Air Museum, Moscow

Or sometimes, there were Soviet surface ships loaded with batteries of supersonic missiles designed to kill carriers. Or it could have been the formidable Oscar class of submarine, also stuffed with missiles that it could launch underwater.

One thing was for sure, however. If you were out flying around and saw a missile trail, you were supposed to hit the microphone key and shout, “Vampire!” The idea was to get everyone’s attention at the speed of light. You wanted to get the tracking radars pulsing and quickly to find those killer pipes trailing fire.

What then? Our doctrine was that the battle group would react and, at first, attempt to jam the inbound “vampires” with electronic countermeasures, or spoof the rockets with chaff and flares. Or perhaps if that wasn’t working, one or more of our destroyers or cruisers would fire missiles to shoot down the incoming bad guys.

As a last-ditch measure — when reaction times were down to fractions of a second — all of the Navy ships had one or more Phalanx Close-in Weapon Systems (CIWS), which are high-speed Gatling-type guns for putting a wall of shells in front of those enemy missiles. Whatever works, right?

As we went through our drills out on deployment, many were the times when we sat around the ready room discussing how to defend against those Soviet missiles. Wouldn’t it have been nice to have something like those “phaser” systems, like in Star Trek? Dream on, right?

And what of today? Is there still a missile problem out there? Do battle group commanders and sailors up and down the line still worry about “vampire” calls? Well, in the past 22 years since the end of the Cold War, the missile threat has actually gotten worse, what with arms proliferation across the globe. We’re still waiting for that Star Trek defense.

Hold that thought.

The Russian’s “Missing Elements”

Speaking of the Russians, in 1869, Russian chemist Dmitri Mendeleev categorized all of the elements then known to science, based on atomic weight and other properties. He laid out the elements, lightest to heaviest on a table. In the process, Mendeleev noted several gaps. It appeared that some elements were just… missing.

Mendeleev’s original table, with “missing” elements.

Changing the Nature of Computing and Warfare

Today, nearly 145 years later, one of Mendeleev’s “missing elements” holds the key to a technological revolution, a profitable technological revolution.

This element — long since discovered — forms the foundation to a recent breakthrough that will revolutionize the world of digital computing, and even change the nature of weaponry and war.

We’re literally on the ground floor here. This tech is so new that it’s scarcely out of the lab. Indeed, the only samples of this new tech come from specially built bench-model systems. But that’s about to change, because, as you likely know from cellphones and flat-screen televisions, great new tech ideas seldom remain hidden in the shadows for long.

This new tech breakthrough will create vast new fortunes, upturn entire industries (and create new ones, too) and give sleepless nights to corporate strategists and military planners across the world. What is it?

Find out tomorrow in Part II of this story…

Best,
Byron King

Getting Rich from Military Technology, Part I was originally featured in the Tomorrow In Review.

The Constitution doesn’t spell out many things in black and white. Heck, people litigate constitutional issues to extremes! Still, this one line looks straightforward, at least to me. That is, per the Constitution, it’s the duty of Congress “To provide and maintain a Navy.”

As I said, it’s just six words. But as you’re about to see, investing in the “Navy Clause” of the Constitution — that is, investing in cutting-edge military technology — is a significant strategy to cash in. It’s been true for 225 years of U.S. history, and it’ll remain true even with a new round of highly publicized budget cuts.

Meanwhile, media talking heads argue over whether the recent sequestration is all just a manufactured crisis – really, can’t we cut out some of the “sensitivity training” programs, and such, to buy fuel for pilot training?

But in my view, we have to think past that. We have to ponder how the U.S. military, the Dept. of Energy, Homeland Security, law enforcement and more will do business in the years to come… without the budgets that they’ve grown used to having.

In a sense, sequestration is doing us all a favor. Without the funds for more of the same legacy systems, we need to come up with new ways of accomplishing tasks.

That means new technology. That means new ways of applying that tech. It means new ways of defending against tech that’s coming at us from other parts – from people and groups that wish us ill.

Charting a New Course

Truly, for all the problems facing the DOD, if not the Navy, there’s a way to play this scenario. It’s investable.

Sure, Congress will continue its bickering and make more botched decisions. And sure, a facade of budget cuts will hit various government sectors — even those that, in my humble opinion, should be left alone!

In the end, drastic spending cuts will hit the legacy systems. There will be blood in the streets, so to speak. But at the same time, this kind of upheaval will open the door to other investment opportunities. Start by looking at this chart:

As you can see, the U.S. has been spending nearly $700 billion each year to maintain our military. Maybe that number drops to $600 billion. Or $500 billion.

Any way you slice or dice it, $500 billion is still a massive number. Compare $500 billion with, say, the energy industry. The number is over twice the market capitalization of oil super-major Chevron (CVX: NYSE). And $500 billion is the market capitalization of global oil service giant Schlumberger (SLB: NYSE) five times over. It’s 20 times the market cap of offshore drilling titan Transocean (RIG: NYSE).

By comparison with the energy industry, you can see how the defense budget is not just big, but utterly huge! And yes, a lot of that money goes toward day-to-day things like salaries and ongoing operations. But there’s also a big chunk that pays to pioneer new technology — from missile defense to nuclear submarines to ready-to-eat meals.

Thus, even in an era of austerity, I foresee investment opportunity in military technology.

A Proven Way to Grow Rich

Looking back, there’s perhaps no more proven way to grow rich than by investing alongside new military tech.

For example, in the 1950s and 1960s, the Army wanted to “one-up” the enemy by being able to see in the dark. So the DOD promoted research into thermal imaging — a means by which to cut through darkness and smoke to show heat sources. The companies that were on the ground floor of helping the military develop thermal imaging — Honeywell, Texas Instruments and ITT — have now become household names.

More recently, during the Gulf War in 1990-91, the Army needed a system to transmit information quickly from its global position systems to battlefield commanders, allowing them to make instant decisions. From this technology, the Internet began to spread away from its secretive origins — it began as a means for top decision-makers to communicate during a nuclear war.

It’s a long story, but the short version is that the Gulf War paved the way for a multitude of companies to grow and prosper through the rest of the 1990s — Microsoft, Cisco, Intel, Google and many more.

So… Where Do We Go From Here?

How bad are things about to get down at the Pentagon? It’ll be tough. I don’t envy the job of the top guys, considering how hard it is to manage in an era of declining budgets. Every time you nick the budget, you’re breaking someone’s rice bowl. It gets ugly. It’s personal.

Still, the sun will rise every day. People will have to adapt. Austerity will force new ways of getting things done. People will have to quit bellyaching and figure it out. It’s time for a lot of people to head down to the eye doctor’s office for a new prescription. It’ll take a different set of lenses through which to view the world.

Along these lines, now is our chance to stay focused (so to speak) on the investment world as seen through the perspective of military and technology analysis.

Let’s get more specific. There’s a strong, valid critique of the U.S. military-industrial complex, so named by none other than former President Dwight Eisenhower. There’s a valid critique of the U.S. as a so-called “empire,” with a litany of problems that would be familiar to Caesars down through the ages. Indeed, there are many ways to evaluate America’s problems, and many parts of many possible solutions involve scaling back the power and scope of the U.S. federal government — and its military activities.

Along the way, though, there are new opportunities to learn what’s going on in the world. There are new ways to analyze things and to anticipate the rise of new ideas — or the rebirth of old ones — along with evolving strategies, technologies and approaches to dealing with the never-ending troubles of the world.

Knowing these inside details could make you some money, if you see what’s coming and get in at the right time. In these pages, we’ll continue to go there.

For now, however, expect my military-tech letter to evolve into an ongoing running discussion of the world’s issues. You’ll benefit from this viewpoint, of course. But I’ll also introduce you to innumerable other thinkers, as well as highlight new ideas and technologies that will shape the future.

Keep watching. There’s more coming. Thank you for reading.

Best,
Byron King

A Proven Way To Get Rich was originally featured in the Tomorrow In Review.

New technologies are emerging, however, that could eventually supersede the current computing paradigm we’ve become accustomed to. You’ve probably heard about quantum computing before. In this newsletter, we’ve covered D-Wave, which itself forms part of our revolutionary technology portfolio.

D-Wave’s quantum computing claims have met with skepticism. Naysayers have claimed the company’s computers, are not, in fact, true quantum computers. Maybe D-Wave is too far ahead of their time. Lockheed Martin owns a unit, the first commercially sold. Google has been experimenting with D-Wave technology for image recognition. The company’s response has been to continue to produce more powerful designs, which have now been used to solve computational problems not accessible to conventional computers.

One example is a paper published last year by Harvard researchers in Nature’s open access journal Scientific Reports. Researchers used a D-Wave computer to solve a complex problem involving the shape of protein molecules.

According to professor Alan Aspuru-Guzik from the Department of Chemistry and Chemical Biology at Harvard University:

“ The D-Wave computer found the ground-state conformation of six-amino acid lattice protein models. This is the first time a quantum device has been used to tackle optimization problems related to the natural sciences.”

The lead author of the paper, Dr. Alejandro Perdomo-Ortiz, added:

“ Knowing that we can use real quantum computers to solve hard problems in biology is an exciting and important result. The techniques developed in this report can also be used to tackle other biophysical problems, such as molecular recognition, protein design and sequence alignment.”

In December of last year, however, D-Wave’s technology enjoyed an additional positive independent scrutiny. The University of Southern California’s Operational Quantum Computing Center houses one of D-Wave’s models, called the DW1. They have been putting the device through its paces and validate that it is, in fact, a programmable superconducting quantum adiabatic processor. Not only are they evaluating the computer’s quantumness, but also benchmarking its performance and working on finding real-world applications for its power.

In a discussion at the Princeton Plasma Physics Laboratory, USC researchers Drs. Robert Lucas and Federico Spedalieri showed how they investigated the quantum nature of DW1 by running a test that would yield a different result in a quantum com¬puter as opposed to a classical one. Called a combinatorial optimization problem, it involved finding an optimal solution from a set of possible solutions.

Examples of combinatorial optimization problems include the “vehicle routing problem,” where a solution to finding opti¬mal routes to service customers with a vehicle fleet is sought. Another is the “traveling salesman” problem, the solving of which requires determining the shortest possible route that visits each location on a list once and returns to the original location. In addition to these logistics applications, other applications extend into the fields of social networking, natural language processing and robotics.

Not only did DW1 solve the problems, but the results were also statistically consistent with what would be expected from a quantum system, rather than a classical one. Furthermore, they found the DW1 to be surprisingly robust against the interac¬tion of the quantum elements with the environment, known as noise. Benchmark testing of the system also showed promising scaling characteristics when compared with classical systems. The team plans on conducting additional tests.

Yours for transformational profits,

Patrick Cox & Ray Blanco

D-Wave’s Quantum Tech Set to Disrupt Computing was originally featured in the Tomorrow In Review.

First, a little more on why being a good loser matters…

Put simply, some of the most successful traders I know are also the most psychologically prepared to cut their losses and book gains early. They enter a trade knowing what their “pain threshold” is, and when it’s time to walk away.

Honoring your stops sounds easy when you’re dealing with hypotheticals, but when real money is on the line, it’s rarely as simple as selling off shares once they reach a preset level. Selling a position that you’re mentally committed to is tough. Today, I want to touch a bit on the mechanics behind why stops work – and show you how to make sure that you’re not leaving money on the table when you get stopped out.

Simply put, a stop loss order is a way of protecting yourself when the market moves against you. It’s an order that triggers when shares fall below a specific, predetermined price (in the case of a short position, stops trigger when shares move above a predetermined level). By putting stops in place, you’re essentially locking in the maximum loss you’re willing to take on a position before you throw in the towel.

It’s important to remember that, for traders, stops aren’t an admission of failure…

Instead, they’re a way to protect against contingencies that may spring up. Experienced traders always have a failure rate built into their trading systems – they know that even in a perfect world, a given percentage of trades aren’t going to play out as planned. That’s the key differentiation I’ve noticed between aspiring traders and million-dollar per year traders.

The million-dollar trader knows that losing is a necessary evil of trading.

Once amateur traders realize that, the mental side of honoring stops becomes much less daunting. Understanding the virtues of being a good loser is only half of the equation.

The other half is knowing where to place your stops.

After all, traders who honor poorly placed stops aren’t going to be long-term winners.

Keep these three factors in mind when placing your stop, and you’re much more likely to find success even when markets behave like they have in July…

1. Stops Should be Technically Relevant

Stop loss levels shouldn’t be arbitrary – just because you’re willing to lose a maximum of 5% on a stock doesn’t mean that a 5% stop loss is a good idea. That sort of investor-dictated stop completely ignores the cues that the market’s giving you about the likely price behavior of the stock you’re trading. Instead, your stops should be technically relevant.

What that means is that you’re placing stops at price levels that represent a maximum deviation from the technical pattern you’re trading, not some random loss you’re limiting yourself too.

In practice, that generally means placing stops right under important support levels. That way, once buying support has failed for your setup, you’re automatically out of the trade. Keep in mind that the support level you choose can coincide with a maximum risk you’re willing to take; technically relevant support is just the more important of the two.

2. Stop Outs Should Be Material

All too often, I see cases of traders who do a good job of honoring their stops (and closing their positions), only to leave money on the table when the trade rebounds. The problem is that they’re being too strict with their stops. Remember, support prices aren’t absolutes – a stock can easily move a few cents below the support level you’ve spotted without being a “failed” pattern just yet.

To combat that, I recommend avoiding hard stops (i.e. stops placed with your broker, that trigger automatically). When possible, you should be watching the near-term price action of any stocks you’re trading. That way, you’re able to override your specific stop price if shares fail to penetrate it by more than 1%.

3. Stops Should Hold You Accountable

If you’re having trouble pulling the trigger when it’s time to sell a stop out, you need to be accountable to your stop loss orders. One of the easiest ways to do that is to be explicit about them: consider posting your trading levels on a public forum like a blog or Twitter. (This may not be an ideal solution for traders of smaller names who don’t want to “show their hand” to those on the other side of the trade.)

A more private solution is to keep a trading journal that clearly defines your stop loss price for any stock. This requires you to review your trades that fell below those levels.

There’s no question that taking a loss is the trickiest part of being a trader – but in my experience, it’s also the common thread between the most successful traders I know.

Master the art of the stop and you’re well on your way to generating substantial gains in any market…

Have a great weekend,

Jonas Elmerraji, CMT

P.S.: I mentioned that Twitter is a great place to post trading ideas – you can follow my trading thoughts in real-time on Twitter @JonasElmerraji.

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3 Tricks to Stick to Your Stops was originally featured in the Tomorrow In Review.

“Now is always the most difficult time to invest.” — Anonymous

Here’s the deal — I need your help…

I’ve already enlisted a group of my Rude Awakening readers to give me their thoughts on the market. Now I want to know what you think.

So tell me…what are you doing with your money as the Dow posts new highs? You don’t need to get too specific — just tell me what your plans are. Are you buying stocks? Bonds? Gold? Or are you a seller?

Or maybe — like a lot of long-term investors — you’re still waiting it out.

Once I get your answers, I’m going to compile them using very unscientific methods — just to get a feel for the mood of the market — albeit using a very small sample size.

Responses so far have been mixed, to say the least. Some investors are ultraconservative. Others are anxious. Many just don’t know what to think…

I understand why this market can paralyze even the clearest thinkers out there.

The trend is clearly higher… but stocks aren’t as cheap as many would like them to be.

Stocks are at a critical inflection point… but a debt crisis stateside and abroad could squash growth.

It’s also easy to paint stocks and Wall Street as the big villains right now. While the Dow has marched higher for four years, your income isn’t growing. Gas prices are high. Europe continues to slowly fall apart at the seams…

But that’s all right. In fact, a lot of very smart people don’t know what to do right now. If I picked 10 expert market analysts and locked them in a room, promising food and water once they reached a consensus on this market, they’d all be dead within a week…

In fact, conflicting signals from economic data, analysts and fund managers are what prompted me to conduct this informal survey.

I received a reader email about a couple of surveys on Yahoo Finance…

“One was last week as the Dow was knocking on the all-time-high door,” she wrote. “It was something like: With the market near all-time highs, what are you doing with your money?

“42% of the responses were ‘I’m still waiting to get in.’

“The other survey was maybe a month ago, with very similar results: 41% of responses were ‘Still waiting to get in’…”

What it boils down to is this: Who’s watching and waiting? And what are their reasons? Yes, a lot of new money rushed into stocks to start the year. But that’s nothing compared with the $250 billion investors pulled from stock funds since early 2009.

Most people don’t trust this market — as evidenced by all these surveys you’re seeing. And my guess is that a majority of armchair investors won’t become comfortable buyers until their more adventurous neighbors start making money in the markets again.

Despite the fact that this bull cycle we’re experiencing is now four years old, we can still safely say few believe in stocks right now. The past 13 years of bubbles and crises continue to weigh on everyone’s mind.

So what do you think? Are you safely navigating this market? Or, in your opinion, are we in a “not safe for trading” environment?

Tell me here: trendplaybook@agorafinancial.com

I’ll report back to you with the results soon…

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What’s Your Dow 14,400 Strategy? was originally featured in the Tomorrow In Review.