It's Little Things That End Up Being Big - WAMUQ, HEB, DCSO

The market is finally facing the music for its outsized gains over the last five weeks, though it's still too soon to count the bulls out. As the saying goes, the market can stay irrational longer than I can stay solvent. In any case, a handful of small cap names are looking particularly trade-worthy.... though not necessarily bullish. Here's a detailed technical view of Discovery Laboratories, Inc. (NASDAQ:DSCO), Hemispherx BioPharma, Inc (AMEX:HEB), and Washington Mutual, Inc. (OTC:WAMUQ).

I've spent a great deal of the last few months trying to talk myself out of believing a bearish trading like the one Discovery Laboratories, Inc. (NASDAQ:DSCO) is trapped in could last as long as this one has. Yet, every time I get close to doing so, DSCO falls right back into its old groove to verifies that, yes, that pattern can exist indefinitely. That's bad news for current owners of this small cap stock.

If the weekly chart of DSCO below seems familiar, that may be because it is. I've posted it a few times, mostly in the last half of last year. Since then we've worked our way through another ebb/flow cycle, where the stock followed a lower low with a lower high, still framed by the falling channel lines marked in blue. It was the third lower low from Discovery Laboratories during this mega-trend, and the fourth lower high. If you want to give the pattern a little leeway, you could reasonably argue it was the sixth lower low, and the fifth lower high.

In any case, Discovery Laboratories, Inc. is back on my hit list today for one simple reason.... we're seeing renewed bearish follow-through on the breakdown under minor support at $0.61 (orange). I thought that might be the floor that broke the streak, but no such luck. This bearish pattern now seems to be on auto pilot.

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Though I wouldn't necessarily step into right at its current price of $0.225, I'm ready to renew my bullishness on Washington Mutual, Inc. (OTC:WAMUQ) as long as it holds above $0.20. What happened between my March 9th comments that "I'm done with it until further notice so take profits now"? That was when we were sitting on a 200% (or so) gain, and right before WAMUQ was poised to tumble from $0.52 to a low of $0.09 by the 12th. [You're welcome, by the way.] Now, the tide's turning again; consider this the 'further notice'.

In the interest of fairness, I don't see the next trip up for WAMUQ being as explosive as the last one was from the December low. That one was hype-based, and founded on an expectation of a particular event. That event was a one-time thing though, and can't happen again for Washington Mutual, Inc. Now, the stock will have to trade on its merits, and the technicals.... a much bigger challenge than trading on hype.

But what got Washington Mutual back on my radar now? Basically, the move back above $0.20, which had been a resistance line for this small cap stock for a while. To a lesser degree, the move back above $0.17 served up a similar bullish clue. It didn't hurt, however, that the selling volume had al but faded four days ago, while the buying volume today is already certain to be stronger than the light selling volume we saw on Monday and Tuesday for WAMUQ.

A few days ago (back on the 3rd, to be exact), I suggested now was a great time to venture into Hemispherx BioPharma, Inc (AMEX:HEB).... while nobody else was even thinking about the company. Though we've not seen explosive fireworks since then, we have seen HEB make important bullish progress. I think this small cap stock is in an even-better position for upside movement now.

In simplest terms, HEB has made its way above a ceiling, and has (so far) managed to turn that prior ceiling into a floor. Back on the 3rd, when the stock was trading at $0.718, I suggested that $0.73 was the resistance line to watch. Now Hemispherx BioPharma is trading at $0.743, but had been as high as $0.84 a few days after the initial comments. Most importantly though, a pullback from that high stopped and reversed around $0.72 - which in retrospect was a more accurate level for that ceiling (which is now apparently a floor).

I know it's all very subtle, to the point of being almost imperceptible. That's the norm though - periods of low volatility are followed by periods of high volatility... and this is a low volatility period for Hemispherx. I do feel, however, that a bullish volatility phase is still brewing up; the modest rise overt the last three months is the early warning.

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