got it working.. put the water first then resize.
$srcimg = "test.jpg"; //the source file
$tmimg = "sm_".$srcimg; //were to place the thumb
$wmimg = "hack.png"; //the watermark files
$target = 150; //thumbnail target size
$waterlevel = 40; //the level of opacity
//load the jpeg and get its sizes
$image = imagecreatefromjpeg($srcimg);
$size = getimagesize($srcimg);
//make watermage img | and get its sizes;
$watermark = imagecreatefrompng($wmimg);
$watermark_width = imagesx($watermark);
$watermark_height = imagesy($watermark);
//this will place it Bottom-Left, 5px from the border
$dest_x = $size[0] - $watermark_width - 5;
$dest_y = $size[1] - $watermark_height - 5;
//copy it over | save it over the original | and clean up
imagecopymerge($image, $watermark, $dest_x, $dest_y, 0, 0, $watermark_width, $watermark_height, $waterlevel);
//this if just figures out what side is dominant
if ($size[0] > $size[1]) {
$percentage = ($target / $size[0]);
} else {
$percentage = ($target / $size[1]);
}
//calc the thumb sizes
$newwidth = round($size[0] * $percentage);
$newheight = round($size[1] * $percentage);
//make a new img | copy the smaller | save as jpeg | clean up
$thumb = imagecreatetruecolor($newwidth, $newheight);
imagecopyresized($thumb, $image, 0, 0, 0, 0, $newwidth, $newheight, $size[0], $size[1]);
imagejpeg($thumb, $tmimg);
imagedestroy($thumb);
imagedestroy($watermark);
imagedestroy($image);
