Welcome back, one and all. How was your weekend? For those of you who are horse racing fans, Saturday's Kentucky Derby didn't disappoint, maintaining its status as the most exciting two minutes in sports. California Chrome lived up to the hype, and I wasn't surprised to see Danza show (I suggested both would do well in Friday's newsletter). But Commanding Curve? I gotta say, I didn't see that one coming. Nobody else did either, judging from the 37-to-1 odds on the horse around post-time. Anyway, the surprising and not-surprising aspects of the 140th Kentucky Derby - how the favorite and the least favorite horses both did will - got me thinking about not just the art of picking horses, but how horse-racing wisdom may also apply to how we pick stocks. And yes, there are plenty of applicable lessons. Three of them, however, really stood out enough this year to pass those ideas along to you. In no particular order... 1. Diversification is (still, and always) the key. While the favorite horse finished first this year, that's actually an exception to the norm. The presumed "best horse in the field" only wins about 15% of the time. It's a sign that picking the winner of a particular race is hard enough when the favorite horse rarely wins. That task gets even tougher when the proverbial "rest of the field" all have similar chances of winning. The only way (outside of some serious luck) to make any actual money on Derby day is to bet a basket of good horses, knowing all of them won't win, but also knowing at least three of them should take the top three spots. Ditto for your stock portfolio. 2. The market always matches the appropriate reward with the perceived risk, but that perception of risk isn't always on target. By post-time, California Chrome's odds had fallen to 2-to-1, meaning for every dollar you bet on the horse to win, you'd get two dollars back. Compared to the kinds of returns you might expect from trading stocks, that's a huge payback. By horse racing standards though, it's pretty weak. Then again, why should you get paid handsomely when there's little to no risk? California Chrome was supposed to win the race, and everybody knew it (and bet it accordingly). On the flipside, nobody expected Commanding Curve to be a contender. That's why the market - the betting pool - was willing to offer a payback of 37 times the size of a bet to anyone crazy enough to take a shot on him. Here's the thing.... neither Commanding Curve nor California Chrome knew the odds before the race, and the two horses would have finished second and first, respectively, no matter what the odds were. Bettors as a whole only got one of the picks "right", however. Likewise, some long-shot stocks do end up being very rewarding to those few who manage to see the much bigger picture and know the reality of a unique situation. 3. Every pick has at least one rabid fan out there. While the bulk of the focus leading up to the Kentucky Derby was on California Chrome because of his recent prior runs, nearly every horse in the race had a vocal fan or two (even if it was the animal's owner) that was sure their horse was going to win. Clearly 18 of those table-pounders were wrong on Saturday; hopefully you guys listened to the right pundit. The thing is, this happens with stocks all the time. Goldman likes it, but Stifel doesn't. Canaccord likes it, but Oppenheimer doesn't. If you look long and hard enough, you'll find whatever opinion you want to find about a particular stock. Your best bet is to listen to analysts that perform consistently well for you, and then ignore the ones that seem to be throwing darts while wearing a blindfold. Anyway, I just wanted float those relevant reminders out to you guys while the Derby was still fresh in our minds. However, I also wanted to talk to you a little more about lesson #3... finding a qualified source of advice with a track record to believe in. I don't remember if I told you guys this or not, but when I was crunching the numbers a few days ago, I crunched out a calculation that kind of blew my hair back - through the first four months of the year, the SmallCap Network Elite Opportunity exited 28 trades, and locked in an average gain of 10% on them. Now I know the figure of 10% may not "wow" at first, but there's some context that needs to be underscored about the math. First and foremost, that's a LOT of winning trades in a short period of time; how much would your portfolio have grown if you locked in twenty-eight 10% winners every four months in 2013? On a per-trade basis, those are the kinds of results that out-perform most hedge funds. The other contextual detail that matters: It's not like the Elite Opportunity service is just sitting on a bunch of currently-unrealized losses they didn't exit just so they could pat themselves on the back here. There only seven open trades in the EO portfolio right now, and of the 28 they closed in 2014 (through April), eighteen of them were also entered in 2014. In other words, the Elite Opportunity is not only profitable, but it's efficiency with time and capital. My point is, if you're looking for that reliable source of good stock-picking ideas, the SmallCap Network Elite Opportunity is the best I've ever seen. If you want to try before you buy, you can do that. Here's how to get it, or cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/ This Chapter for Stocks is Almost Over Two months. That's how long the market's been on hold, using the S&P 500 as our proxy. Or, if you prefer, 40 trading days... the S&P 500 pretty closed today pretty much where it closed on March 7th, or 40 trading days ago. I think, however, we're getting near the end of the dry spell and are finally gearing up for a little movement that could end up sparking a lot of (relative) movement. While we normally start - and often finish - with a look at the S&P 500, today I want to kick things off with a look at the NASDAQ Composite, acknowledging that the Elite Opportunity newsletter put this reality on my radar Monday. In simplest terms, the composite is near the tip of a wedge pattern, and with no room left to move, it's going to have to break somewhere. Thing is, after several weeks' worth of compression, once it breaks past one of these two boundary lines, it's apt to keep rolling in that direction. What you'll also notice on the chart of the NASDAQ that's a little different than the chart of the S&P 500 is how the Composite's volatility indeed (the VXN) actually has room to move a little lower before hitting a wall. It's not a lot of room, but a little room. Now, with the look at the NASDAQ fresh in mind, take a look at the S&P 500. It didn't give us a huge gain today, but it gave us a decent one, and perhaps more important than that, it pushed back quite nicely from a fairly bearish open. The formation of the hammer-shaped bar is a bullish clue in and of itself, telling us the market may have flushed out the last of any dead weight holding it down today, and the bulls are once again taking charge. I've mentioned to you several times that I'd rather see the market dip just a little before staging a breakout effort, just to make sure we weren't starting a rally in an overbought condition. Today's small dip may have done the trick, getting back into position to break above the ceilings around 1884 and 1895 before the closing bell rang. In fact, it looks like the buyers are looking for a way/reason to start that buying avalanche. On the other hand, the S&P 500's volatility index (the VIX) is already at a key support level. Oh, it could sink a little lower and let the S&P 500 finally push past its ceilings. That would be tough for the VIX to do from where it is at this point, however. So what's the call? I'm leaning bullishly here, despite the VIX. I'm not interested in pulling the trigger until we get at least a little more certainty though. Two or three more progressive days of a little more bullish persistence, and I may be singing a much more bullish tune. For what it's worth, John Monroe over at the Elite Opportunity sees the same key lines that I see on our charts, but he isn't as optimistic as I am about the brewing outcome. He does see the bulls taking charge from here, but is more of the mindset that what appears to be a breakout is actually going to end up being a fake-out. I can't tell you any more than that about his analysis, though I will tell you he's a big part of the reason I'm only cautiously optimistic at this point. Bottom line? I'm willing to give the benefit of any doubt to the bulls right now IF the indices can wiggle their way above some pretty significant hurdles over the course of the next few days. Monroe isn't giving anything the benefit of the doubt yet. Whatever the case, if you want a well-qualified alternative opinion, he's been slicing and dicing the market with a lot more detail than I've been lately. Here's the deal, or cut and paste this link: https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/