By: Bill Spencer — January 3, 2021
Small-Cap Monday - Today I Show You How to Profit From Magic
“Any sufficiently advanced technology is indistinguishable from magic”. ~ Arthur C. Clarke, Scientist and Science Fiction Author
Happy First Monday of 2021!
I hope you and your family enjoyed the holidays.
Today we're going to talk (as we often do) about technology and how to profit from it.
But before we get to that, here's a question.
Do you believe in magic?
You just might... But you might not realize you do.
Let me explain...
One of my favorite shows is The Carbonaro Effect, the hidden camera magic show on TruTV.
If you've never seen it, do yourself a favor and catch an episode. You're in for a treat.
In it, Michael Carbonaro, a New York magician, puts himself in some common situation -- as a bartender... an eye doctor or dentist... a computer salesman or pharmacist... a pet-groomer... the guy at the hot dog truck...
And makes unsuspecting people witness the impossible and believe the unbelievable.
Why bring up a magic TV show?
Look again at Arthur C. Clarke's quote: “Any sufficiently advanced technology is indistinguishable from magic”.
I thought of that recently while watching The Carbonaro Effect. And it occurred to me that many of the show's best tricks rely on this identity between magic and technology.
The "victim" is lulled into accepting the reality of the gag because he or she believes in technology and in the things technology can do.
He or she (like you and I) have put so much "faith" in technology that we've developed a kind of blind spot.
We find it almost impossible to believe there's anything technology can't do.
And this state of mind makes us the perfect "marks" for a clever magician.
A favorite Carbonaro illusion involves bringing some item -- a six-pack of beer, a cup of soda, a bunch of fresh bananas -- to a customer "wirelessly", or "through the cloud".
As you might know, in real life "the cloud" refers to the hardware and software that lets businesses store and process data remotely, without needing to own any specialized computers or software.
In one episode Carbonaro (in red), uses a handheld "wireless" dispenser to conjure soda from thin air.
(Click any image to enlarge)
"They went wireless with the soda machines," he tells the customer. "We don't store it here. One place keeps the carbonated stuff and the other place keeps the syrups."
The dispenser suddenly starts gushing what looks like milk.
Carbonaro explains that this glitch is common with the new wireless soda system.
"The ice cream place down the block gets their cream through the same server as we do," he says, topping off two full pitchers from something the size of a can opener.
"I keep connecting to their cream server".
Another time he fills an entire gallon glass pitcher with orange juice, seemingly squeezed out of one small piece of fruit.
He tells the customer that this miracle is possible thanks to a new plastic juicer that probably couldn't fit over his pinky.
Thanks to "micro ridges" embedded inside, his gizmo is able to "pulp the pulp" from the orange. ("You have to keep turning as you squeeze.")
The lady at the counter reacts to this Niagara of O.J. the way you or I would react were we standing there at the time.
What she does not do, and what that guy at the soda counter doesn't do, and what hardly any of Carbonaro's marks ever do...
... is to question the reality of what they're seeing.
I think the answer has to do with what I said a moment ago.
It's because they, like most modern people, believe in technology and what is technologically possible.
That might sound like a stretch.
But imagine if, instead of giving his illusions a technological veneer...
Imagine if Carbonaro (or David Copperfield or any modern stage magician) tried posing as, say, some kind of wizard or mystic or "swami", the way magicians from 100 years ago used to pose.
Not a single person would fall for a single gag. Not these days.
"Cut the crap", they'd say. "You think I'm stupid or something?"
The suspension of disbelief would simply not be there.
Now, transformative technology is the single biggest mega-trend of our time.
The subtends underneath that mega trend are many and varied.
There's robotics... driverless cars... artificial intelligence... genome-based therapies... cryptocurrencies...
I could go on and on...
As mentioned, "the cloud" is one such sub-trend that's fundamentally altering the business and economic landscape.
More and more firms are using remote (that is, "cloud-based") servers and software, rather than installing and maintaining these things "in house".
This saves them a fortune on the cost of processing and storing data.
And while the cloud will not deliver you soda (at least not yet), it could certainly deliver you profits.
That's because it's a mature trend, meaning that it's investible. (Not all trends are investible. It's still hard to profit from the blockchain. I'll have more to say about that in a future column.)
The cloud is investible, and today we're going to invest in it.
The Global X Cloud Computing ETF (CLOU) tracks investment results corresponding to the Indxx Global Cloud Computing Index.
For its part, the Global Cloud Computing Index tracks the performance of companies positioned to benefit as cloud computing technology makes its way deeper into the economic landscape.
CLOU's holdings include Twilio... Paylocity... Fastly... Shopify... ZScaler... and others.
The ETF is a member of the #7-ranked Software sector. Right now Software is showing bull confirmed status on its Bullish Percent Index (BPI) chart.
That's the strongest possible designation for this indicator.
The fund is strong against the market (the blue arrow on the right).
In the four months leading up to the COVID meltdown, CLOU gained +28.5%.
When the pandemic hit, it fell with the rest of the market, losing -32.5% in a month.
But between March 18 and December 23, it gained +137%.
It's down about -4.5% since the December high, so now is a good time to consider taking a position.
And you might want to wait a while for the recent dip to reverse.
The fund trades for around $27, which is inexpensive in a space where ETFs can trade for $150 or more.
We're going to hold this one and watch it climb throughout the year.
If you trade options, consider buying the June 24 Strike Call Option. This option has a 75 delta and 169 days to expiry. That makes it an almost perfect candidate for the stock replacement strategy.
Right now the CLOU June 24 Strike Call has a mean bid/ask spread of $5.20.
Here's to a magically technological (and profitable) 2021!
Editor-in-Chief, True Market Insiders