Dow Jones 13010.00 +189.87 5:24 am PDT, May 2, 2008 NASDAQ 2480.71 +0.00 For info, visit access.smallcapnetwork.com S & P 500 1409.34 +0.00 Change your subscription status here Russell 2000 729.75 +0.00 VOLUME 08 : ISSUE 42 Bernanke, The Dollar, & Oil - Oh My For those of you who read Tuesday's newsletter, you'll know I was in New York in the middle of this week doing some bird-dogging for our next small cap stock pick. I liked what I saw, and I think you will too. A lot of things are coming together for this company. It's not quite ripe yet though - maybe a few more weeks. But...  What I want to talk about today is something much more near and dear to all of us right now - the dollar and interest rates. By extension, this includes oil and inflation, not to mention stocks and gold. In a nutshell, I'm going to try and wrap them all of these topics into...well, a nutshell.   Curious Indeed I wasn't surprised to hear the Fed's decision to cut rates another 1/4 point, nor was I surprised to see the market's lethargic response. It was all business as usual ...sounds bullish initially, then the dollar sinks some more.  This time though, something a little different happened.  Has anybody been watching the U.S. dollar lately? I don't mean over the last five years. I'm talking about the last five weeks. Believe it or not, it's not getting trashed anymore. It may even be on the mend.  This is a big deal for a couple of reasons. Though a stronger dollar won't completely cure inflation, it could help curb the pain. It will also help the U.S. draw some interest from foreign investors, which may well prop the economy up. What's so odd is how the dollar is now perking up on the same news that had been sending it lower...low interest rates, which stem from the unusually low Fed Funds rate.  What's different with the dollar now? Maybe nothing. Maybe this is a fluke. I suspect, however, currency players - and even international companies on both sides of the border - are thinking the worst is over. Somebody's betting on the dollar rather than against it, for a change. The nearby chart speaks pretty loudly to me.  Don't misunderstand - this chart isn't a screaming buy yet. I'm just seeing a lot of consolidation of the U.S. Dollar Index, which can be an omen of things turning around. Getting and staying above 73.0 will be critical, as will following through to the upside. It closed at 73.20 on Thursday.    Not Just a 'Perceived' Inflation Any inflation at all is too much for the average consumer, so I tend to ignore the general grumbling about it. However, you know as well as I do that inflation has been real for months now.  There's a conspicuous and not surprising correlation between a very weak dollar and inflation rates, as evidenced by the nearby chart.  As a result, we've all seen crude and food prices surge. The pain is particularly acute for United Sates consumers when it comes to the gas pump, which happens to be priced (unfortunately) in those weak dollars.  Here's my point - the dollar is acting differently. The Fed has started to hint they're not enthusiastic about further rate cuts, probably because inflation has become more painful than slow growth. The buzz is other nations' banks are mulling increases in their rates, which will hurt the dollar's value. Bennie and the Feds can't afford to let the dollar weaken worse than it is with that in the backdrop.  Moreover, the market believes the Fed this time. Why do I think this? The dollar rallied on Thursday. Oil prices fell on Thursday. Stocks rallied on Thursday.  One day doesn't make a trend. Heck, I may be eating crow later on this afternoon. I'm just saying, to me, things are starting to look different on these charts.  Rome wasn't built in a day, and this recession won't be turned around in a day. However, you now know what I'm seeing - something different than before. I'll follow up as needed in future newsletters, but this may be the start of something.    Other Arguments The other side of the equation is dropping the same hints - crude oil prices and gold futures are fading....gold in particular, which hints that inflation pressures are winding down.  A lot of investors think these two charts are reflective of inflation trends. I think they're more predictive of inflation trends. To see one of them shift gears sends a message to me that something significant is going on.  Take a look at the chart. After peaking at around $1033, gold completely lost its luster. For the first time in a couple of years we saw gold futures make lower lows and lower highs. You could even make a head-and-shoulders argument.  Crude oil futures have peeled back a little too, though only in the last few days. I don't see this uptrend as being broken yet though. There's a very long-term support line in place, around $100.00. When and if it's broken, that could be huge. Until that time though, there's room for those sellers to build up some momentum.  Anyway, click here to see inflation, interest rates, gold, oil, and the dollar all plotted on the same chart.  By the way, the time is looking right for another small cap name I've been watching over the last few weeks (not the one I was in New York for). I can foresee this name being put in front of you sometime next week. I want to check out a few more things, but I'll try and give you some advance warning about its launch. This company's got a solution to a big problem. In short, they make data transmission over the Internet even faster. The broadband bottleneck is a growing problem that is not only significant, but also preventable. These guys are designing solutions to the problem.      We Value Your Feedback   Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 4653 Carmel Mtn Rd Suite 308 #402 San Diego, CA 92130 SpongeTech at a Tipping Point SpongeTech's (OTCBB: SPNG) stock popped on Wednesday following Tuesday's news of a $7.5 million order. Delayed reaction I guess.  In any case - and as I've said numerous times now - I think this small cap company is one of our best bets right now. We're back above the 200 day moving average line, and made a higher high yesterday If we can get to 5 cents, I think this thing could blast off. It's one of the few companies putting their money where their mouth is, and growing the top and bottom lines.  By the way, did you see their latest news? Their sponsorship of a New York Mets game has already started to reap rewards, even though the game isn't being played until May 13th. How's a future game driving results now? The sponsorship package includes radio ad spots before the game....and the ads have already started. The word is, those radio advertisements have caused their website's traffic to increase by 250%. Given that you can order sponges via the site, this could add another incremental layer of sales.    Telemig Celular Participacoes ...I Can't Pronounce It, But I'm Sure Glad I Picked It Though it's not a small cap name, our stock pick Telemig Celular (NYSE: TMB) took flight on Wednesday with a 6.0% gain. TMB shares are now near new 52-week highs, alleviating my concern from a few days ago that the trend had stalled.  As of right now, our gain on the Telemig pick is about 15%, and we're roughly halfway to our target price of $79.20. I feel much better about this trade now.  Subscribe Information is power and timely information is profitable. Become informed and profit from Small Cap Network Profiles and Trading Alerts by becoming a Preferred Member today. There is no cost associated with your email subscription. Add your email address below and make sure to check your email inbox and confirm your opt-in request to start receiving the Small Cap Network Email Newsletter on a regular basis. To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. Receiving the Small Cap Network Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! 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