If you’re not familiar with the role that support and resistance can play in trading, I think the recent chart of the U.S. Dollar Index (UDX) can illustrate the idea quite well. When I last looked at the sawbuck, I highlighted how - for the first time in years - it had made higher highs and higher lows. My worry was validated though….that we’d still see more short-term up and down, as the chart had been trapped between two pretty reliable guideposts.

Sure enough, UDX hit the upper resistance line, and started to sink towards the lower support line. It didn’t actually get all the way there though; it’s on the rebound today. I’m still a little bit hesitant, but today’s bar has a pretty bullish implication; maybe we’re done with that support line.

Just to be clear, I expect no less volatility than before. I just want to mention how in the bigger picture we’re still seeing higher highs. Though FOREX traders are making nice money with these 2-to-3 day swings, I’m mostly looking at the bigger trend.

That said, 73.80 is still a major line in the sand. So too is 77 (though it’s still a ways off). If the upper resistance line is breached, I’ll be looking for much faster and stronger upward move…up to the 77 area.

What’s this got to do with you unless you’re a FOREX trader? Two things. The first is, your weak dollars are largely what’s causing you pocketbook pain.

The other reason is, you don’t have to trade FOREX to trade currency. There are now ETFs that reflect the exchange rate between the U.S. dollar and other major currencies. There are even options that trade on those ETFs (though they can be a little illiquid in some cases).

I’m mulling an option trade on one of those ETFs. I’ll let you know if and when I do it; feel free to trade along.

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On Tuesday of this week I made a handful of points about crude oil’s chart. In a nutshell, I thought oil had peaked at $135 in the prior week, and Tuesday’s level of $133 was just the beginning of a minor correction. Now with oil trading in the mid-$127 area (you can thank me for the tip later), I want to update my thoughts on crude’s chart and let you know to not get too excited about the commodity’s demise…..the bigger uptrend hasn’t fallen apart yet.

There are two near-term support lines we’re dealing with now. The upper one was brushed with today’s low of 124.67, and may have sparked a bounce. The second one is currently around 118…and hasn’t even been tested yet.

The point is, this week’s weakness is fun to think about while you’re shelling out $4 a gallon at the gas pump. The reality is, oil’s still damn expensive, and technically getting more expensive.

YES, in the bigger picture, I’m still an oil bear now. I mentioned earlier in the week I don’t think oil’s going to $200 the way some people think it will. That said, I’m going to let the chart tell me when it’s time for me to actually do something about being an oil bear (i.e. trade it). As ripe as we are for a tumble - or overbought - there’s still a lot of support.

A move under that lower support level would be a good start in my book. That would also mean a move under the 20 day moving average line, or the red line on my chart.

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Per my comments yesterday, I think it would be wise to go ahead and lock in a gain on Silicon Image (SIMG)…for those of you that got into a trade. The support line at $6.80 was breached, and from here there’s more risk than reward. A 26% gain for a couple of months worth of work isn’t bad.

We’ll keep an eye on this one. If it starts to perk up again, I may step in after a healthy pullback. Next time though, I’ll probably go with a call option and get a little more leverage. The option market for Silicon Image isn’t tremendously deep, but I can find enough liquidity somewhere in there.

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We’ve been putting out a lot of trading ideas lately, some specific - like Voyant (which is up 30% from our pick price) - while others were just mentioned in the blog, like Silicon Image was featured on April 3rd. In fact, the Silicon Image (SIMG) pick is the one I want to reprise…..not to encourage you to get in, but possibly suggest some profit-taking.

Just a little back-story about this stock pick….when we blogged it on the 3rd of April, the stock was trading at $5.29. Our attraction was two-fold. We liked the way the buying volume was picking up, and we had seen a major resistance line get broken.

As it turns out, the trade got some traction - SIMG is now trading at $6.93. That’s 31% higher than where we first mentioned it.

So do we keep riding it, or do we bail? We see both sides of the argument, but we’re leaning - conditionally - towards the latter.

Technically the uptrend is still intact. However, the last three days have been sideways, with the stock caught in a $6.80/$6.97 range. This may be pushing our luck, and we don’t want to give anything back if we don’t have to.

On the other hand, there’s no ‘proof’ the bulls still aren’t at work here.

The answer to the ‘what to do’ question lies in that range. If $6.80 fails to act as support, we think a profit-taking exit makes sense. You may want to set a stop somewhere in the $6.70-ish area. If instead SIMG breaks above $6.97, that may be a sign of another bullish leg. At the point, we can’t suggest setting a target, though we would recommend keeping a stop-trigger just under $6.80 (better to have it and not need it than need it and not have it).

Like I mentioned, the trade has already produced more than a 30% gain for us…and we’re still counting.

By the way, if there’s a certain trading idea we’ve mentioned that you’d like us to update, feel free to leave us a note below.

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This little Brazilian Telecom stock we picked in late February has ended up being a pretty nice trade. Telemig Celular Participacoes (TMB) is now up more than 15% from our pick price, and still itching to go higher.

We were concerned a couple of weeks ago when we saw shares surge to new highs, stall, then make a sharp dip. The pullback was a one-day event though. The stock came rallying back even stronger the next day, and hit new highs again today. Translation: we’re still on the right side of this trend.

Our target remains at $79.20…about $10 away. We saw Telemig easily rally about $20 in the middle of last year before taking a break. So, adding another $10 to what we’ve already achieved isn’t implausible for this trade.

On the other hand, one key item has come back around on the chart - a significant resistance line right around the $70 mark. This isn’t a reason to sell, but it may be the cause for any stall, and possibly a rollover. Of course, it may break past that line and turn into a rocket. It’s just too soon to make that call. For now we’ll wait and see how things proceed.

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I know many of you are still a little euphoric following yesterday’s huge rally. As a cautioned then, however, don’t get used to it. Merrill Lynch (MER) is reminding us today that we’ve still got some kinks to work out. They took $6 billion in write-downs, leading to losses of $2.1 billion (or $2.19 per share). They’re sacking 4000 employees soon too. Geez. Pfizer’s (PFE) earnings dropped as well.

Like I also said yesterday though, some companies are actually doing well. Take IBM (IBM) for instance - they put up a nice earnings increase. So, there are investment-worthy companies out there.

And what about the short run, where fear and panic can override a stock’s actual value? It’s the same old song and dance. The market can punch the throttle for one or two days, but then fizzles. The result range-bound-ness. I’m not sure if range-bound-ness is even a word (in fact I’m pretty sure it’s not), but that’s what we’ve got right now. Until we clearly break out of the rut, I don’t suggest getting excited about anything. I do suggest scalping those swings for a few precious points though.

Regardless, I’m still optimistic about our bulletin board stock Spicy Pickle (SPKL). We’ve covered them extensively the last couple of days, but I think this morning’s wrap-up effectively puts all the good stuff into one place.

Bulletin board stock SpongeTech (SPNG) is rallying as well, despite the market’s bearish open.

Stock Pick of the Day: Matrix Service (MTRX). Total speculation here, based on the wide range the stock’s been bouncing around in. We’re pushing off that lower support line, but have seen MTRX travel as high as $30.00 recently. That’s more than 8 points above where we are now, which could mike for a good stock trade, but an even better option trade. The risk here is pretty big, but the reward is commensurate.

Sector Pick of the Week: None, but of you took my advice from April 3rd and got into a coal stock or a coal trade, now I suggest you go ahead and lock at least part of it in. The Dow Jones Coal Index gained 19.3% since then. I don’t have a problem with the size of the gain. My problem is with the speed the gain was made. The group is well overbought now, which leaves them wide open for a lot of profit taking. I still think the group will have a great 2008, but I don’t see them moving higher from here without a significant pullback first.

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I don’t want to be the bubble-burster here, but I don’t think we should be getting too enamored by the market’s apparent rebound today. As a said yesterday, it’s option expiration week, which can create some artificial pressures. And, the market has been unusually volatile from one day to the next recently. Until we get some sustained action, I contend stocks remain range-bound.

Regardless, I was very pleased to see some strong corporate earnings this week - particularly in the wake of General Electric’s (GE) dismal news. Schwab (SCHW), Intel (INTC), and Coca-Cola (KO) all reported great numbers. So, perhaps all is not lost right now. What about poor earnings from J.P. Morgan (JPM) and Wells Fargo (WFC)? Hey - just because we know sub-prime and bad loans are a problem doesn’t mean we’re past them yet. I’m going to give most of the financials a little more time before I get interested. Overall though, some major names are looking healthy in terms of earnings.
As for our small cap stocks, SpongeTech (SPNG), Spicy Pickle (SPKL), and Telemig (TMB) are taking advantage of the market’s tailwind by moving as far as they can while they can. Those have been the only three small cap stock picks we’ve really expected anything from lately, and they’re not letting us down today.

By the way, don’t forget about Spicy Pickle’s conference call today. The call will start at 4:15 pm EST/1:15 pm PT. To participate, call 1-866-696-5897 if you’re in the U.S. or Canada. Overseas shareholders should dial 416-641-6128.

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I know I’ve been talking about selling my QQQQ April 47 puts and locking in my gain, but I’m glad I held on for one more day. I am going to sell them today though, at about $3.00. With a purchase price of $1.86, that’s more than a 60% gain in a little over a week.

Though I still see more potential downside (see chart ) for the QQQQ’S, the clock is ticking. These puts expire on Friday, so I don’t have the luxury of waiting if they happen to reverse course within the next couple of days.

Speaking of expiration, odds are that this week will be choppy, but relatively non-productive in terms of net movement. Just don’t try and squeeze out something that’s just not gonna’ happen.

By the way, last week SpongeTech (SPNG) announced they’d be sponsoring a New York Yankees game in July. Yankees fans were probably happy to have ‘one-upped’ their cross-town rivals…the New York Mets.

Well, in the interest of being ‘fair and balanced’, they announced this morning they’d be sponsoring a game for their other home-town team. That’s right - on May 13th, SpongeTech will be handing out t-shirts at Shea Stadium before the Mets play the Washington Nationals.

SpongeTech shares are surging today, though I don’t think the Mets news is the sole reason. I know earnings are due soon; maybe something leaked.

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I’m writing this as of 11:50 am EST on Friday, so things can still change, but….General Electric’s (GE) bad news meant the market started lower right out of the gate. However, we haven’t seen stocks go hog-wild yet.

Quite the contrary actually…we’ve seen an orderly decline. That’s actually bearish in the sense that it’s methodical and well thought out, as opposed to panic-driven. I also have to chalk a lot of it up to just being Friday though. Volume was low this week, and I can’t help but think traders are simply cashing out after recent lackluster sessions.

I don’t mind telling you I was sweating my QQQQ April 47 puts a little bit yesterday. I had a good feeling that surge was a fluke though (by the way, trading on a ‘feeling’ is not a practice I condone). I’m back in the black today, by about 5%. I have a week left on the put options, and I think I’ll be able to squeeze out a little more between now and then.

Remember from yesterday what I was saying (ok, griping) about Telemig’s (TMB) ridiculous rally over the last two weeks? Basically, my beef was it just gained too much, too fast. It couldn’t be sustained. Well, I was right. It’s off 2% today, and I suspect it could sink another 5% before making a short-term bottom. Freakin’ volatility.

Anybody flying American Airlines (AMR)? I’m not even going to say it.

I suspect the bears will keep their grip today, and let the bulls get an early start on the weekend.

Stock pick of the Day: Oxford Industries (OXM). For some reason the textile and apparel stocks keep showing up on my screeners. It’s a nice undervalued idea, though not particularly impressive when it comes to the bottom line. It’s mostly institutionally-owned. That’s a great ‘endorsement’, but there’s so much of it owned by these guys that there’s not a lot of room for new money. Definitely a speculation.

Sector Pick of the Week: A bearish call on health care plan providers. WellPoint’s (WLP) bleak forecast from mid-March infected all these stocks, and I think rightfully so. The single-day sell off was so strong we got a little bottom-fishing and sympathy buying. However, given that these companies make very little money and are struggling more every day, I suspect we’ll get round 2 of selling in the near future when it really starts to hit the fan.

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Not surprisingly, March’s retail numbers were soft…for most. Discounters like Wal-Mart (WMT) and Costco (COST) did fine, while discretionary goods saw dampened demand. The futures dropped (pre-market) on the news, though that means little to me any more. Why? I’m still mostly in a ‘bet against the open’ mode. That’s why I’m actually glad stocks ‘opened’ a little higher at 9:30 am EST today.

That said, I’m still sitting on my QQQQ April 47 puts, which I bought at $1.85. They’re now worth about $2.00 - a meager 8% gain, though I guess that’s better than getting poked with a sharp stick.

I’m still in the trade for reasons that become a little more clear with the nearby chart. I’m looking for at least a retest of the 20 day moving average line near $43.15. That will give me a little cushion (and perhaps inspire the bears) for what I really want to happen, which is a move all the way back down to the lower Bollinger band (20 day) at $41.62. At that point my puts would be worth about $5.00…a nice 150%+ win. It ain’t happened yet though.

Other things you need to know about….

I love for my stock picks to go higher; I hate for them to surge to the point where anybody else is scared to step in. We should all be used to that by now, but somehow it’s still frustrating to deal with this fire-and-ice mentality.

I say that to preface you for the chart of Telemig Celular Participacoes (TMB), which we recommended back on February 24th when it was trading at $60.75. The current price of $66.20 represents a 9% gain. The problem is, the stock pick gained 13.5% in the last week and a half. That’s just a pace I don’t see being sustained. (If a candle somehow had three ends, it would be the equivalent to all three burning.) Such a move is just likely to invite a wave of profit-taking.

Plus, the quick move puts the stock just a tad under a long-term resistance line. A slower move would have let that line extend further up and out before it was intercepted.

That’s not to say I’m getting out; it’s still a good pick. I’d just rather get to our target price of $79.20 in a straight line (which is usually faster) than by bobbing up and down. Unfortunately, nobody who’s buying or selling the stock asked me what I want. Be patient and tolerant with TMB.

We recently had a reader ask about our coverage of BioCurex (BOCX). Yes, we’re still following the company, though they’re not at the top of our watchlist.

We mentioned a while back that we knew their project was going to take time, so we were going to give them plenty of it. Since then, Abbott (ABT) has indefinitely backed out of their deal with BioCurex…something of a game-changer. BioCurex is still going to proceed with the development of RECAF, but considering Abbott was such a big deal when they teamed up, I can only wonder what kind of blow this is to the company. They’ve been fairly quiet on the topic, which I don’t interpret as a good sign.

On the other hand, they signed Inverness (IMA) as a licensee not too long ago, so maybe the Abbott news doesn’t matter.

The European Patent Office has given them a patent on RECAF, which gives the company much more negotiation power than a ‘pending’ patent would.

Bottom line…we’re still following BioCurex, for the long haul. We don’t/can’t worry about the day to day stuff, as our interest primarily lies in the strength of their RECAF technology. Licensees and patents won’t change that.

Speaking of biotech, I want to point out CEL-SCI’s (CVM) chart again. We previously looked at its higher lows and persistent attack on the ceiling at 70 cents. Since then, the lows have continued to move higher, and the stock is still knocking on the door at 70 cents. Accumulation has picked up as well.

I don’t quite know why the renewed interest. Phase III starts later in the year, and nothing has happened in the meantime that would spark a rally. However, I’ve also observed countless times how biotech stocks trade about two years into the future. As such, I think CEL-SCI is actually one of the best trading opportunities out there right now.

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Before we get to today’s outlook, let’s recap last week’s market action. On Friday, the Dow sank 17 points (-0.13%), the S&P 500 added 1.1 points (+0.08%), and the NASDAQ was 7.68 points higher (+0.32%). For the week though, all three indices made big gains. In the same order, they rallied 393 points (+3.22%), 55.20 points (+4.2%), and 109.80 points (+4.86%). It was one of the best week’s the stock market has seen in a long time. But, was it too good?

I’ll put it to you like this - I’m still holding my QQQQ puts, even though they’re a little underwater. Of course, it’s somewhat easy for me to do that, as I only have a couple of contracts and my risk is fairly small. Plus, I also own them to be something of a hedge against the rest of my mostly-bullish portfolio. Were I making a bigger bet, I may not be so bold.

The reason I’m still hanging in is something I already mentioned - it was one of the best week’s the market had in a long time. Investors have been more apt lately to not make it two for two.

Throw in the fact that Q1 was the worst quarter for stocks since 2002. I think last week may have been nothing but a dead-cat bounce….cause there’s sure no way stocks actually deserved to rally 4%.

Figures that stocks would be set for a higher open. The day ain’t over yet though.

Just as a reminder, whether I’m bullish or bearish depends quite a bit on my time frame. In the short run (days) I’m bearish. In the intermediate-term (weeks) I’m bullish, as I think the March 17th spike in new lows was also a mini-capitulation. In the long run (months) I’m bearish again. I think the long-term bear market will kick in again right about the time that the intermediate-term bullishness has everybody thinking it’s safe to be back in the market.

One of the reasons? Just look at the jobs data. We’re losing them - fast. We’ve been in worse shape on the unemployment-rate front, and we’ve subtracted jobs at a faster rate than we did last week. But, all major downtrends start out as minor ones.

What you do with my thoughts (aside from being at your own risk) should largely be dictated by how active you are and what your time frame is.

Stock Pick of the Day: Ciena Corp (CIEN). This little communications technology company is backing up an attractive chart with solid results. We may be getting a little help from some short covering too…the short interest is still about 14% of the float. I’m not crazy about the CEO and a VP recently selling a big chunk of shares, but the stock survived their activity quite nicely.

Sector of the Week (and maybe the year?): Defense. It hit me like a ton of bricks a couple of days ago when I was looking at DRS Technologies (DRS). They’ve won a ton of government contract (military) business - as in hundreds of millions - this year. As I dug deeper, Curtiss-Wright (CW) and Raytheon (RTN) are also winning lots of bids. Moreover, the stocks are doing well, seemingly shielded from any possible weakness.

What about the election? Every candidate so far has said we need to expand the military, if not in numbers, then in terms of technology. Next year’s proposed military budget would be the biggest (relatively) since World War II. I think the defense names have a lot to look forward to over the long haul.

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I’m sure most of you saw yesterday’s big headline - Bernanke finally acknowledged we might be entering a recession. I wonder what the tip-off was….maybe the fact that everybody already thinks and says so? I like the guy, but he’s been chasing it for several months.

Today he’s giving testimony (though not by himself) to the Senate Banking Committee so we can really figure out what the Bear Stearns deal was. In short, J.P. Morgan is assuming $1 billion of the risk, and the Fed is assuming $29 billion of the risk. J.P. Morgan (JPM) is probably going to own Bear Stearns (BSC) at about $10 per share. Not a bad deal for J.P., huh? You and I are funding the Fed’s part.

I’m not going to gripe; what’s the point? I guess if I had to choose between chipping in to save the banking system or letting the whole thing fall apart, this is better. That said, if you’re as irritated as I am, don’t forget that come November. Also, if your bank is showing hints of similar problems, make your voice known. Ask questions. Shake the chain. If enough of us do it, they’ll hear it.

In the meantime, all the problems I kept in the back of my head did indeed materialize today. Namely, jobs, and more mortgage write-downs. Those problems are not solved overnight. The market for some reason thought they were, judging from the rebound started two weeks ago. Eventually, a stock price has to be justified. That’s why we’re sinking today.

It’s good news for me though…my QQQQ put options are up a little - about 10%. Wish I has bought the April 46’s instead of the 47’s, but that’s ok. I would have expected a little better movement, but the delta hasn’t been quite what it was supposed to be.

Oh yeah - the morning call. Bearish. In fact, I’m looking for a couple of days worth of bearishness. A revisit of $42 for the QQQQ’s is a possibility, though I’d sell my put before getting that greedy.

In other news, our Telemig Celular ADR (TMB) stock pick from February 24th is finally back on track. It got off to a great start, sank pretty harshly, but caught support this week and is swinging upward again. We’re pretty much back to break-even status, but pointed in the right direction.

Stock Pick of the Day: Silicon Image (SIMG). New multi-week highs, growing volume, reasonable fundamentals, and best of all, analysts are luke-warm on it at best. Institutional ownership is an oddly low 54.7%. That leaves a lot of room to put some fuel into the tank, particularly when the big guys see its Q1 performance.

SIMG gained about 10% in the first quarter, while most fund managers lost ground. Desperate for results, I can see them jumping on a stock like Silicon Image. Like I said, they’re a quality company with good fundamentals…nothing a fund manager would be embarrassed to own.

My favorite part, however, is just that the stock is still trading at about 40% of its value from a year and a half ago. Value anyone?

Sector Pick of the Week: Coal. It’s an industry, actually, but I still like it. Chemicals were a close second.

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