For days we’ve had the “calm before the storm” as traders waited for the Fed’s decision. On Wednesday a decent durable goods number and an unexpected build in oil inventories helped spark a short covering rally. The “dogs were barking” and stocks that had been hit hard were leading the charge–but it couldn’t last. Last week we mentioned that the Fed was likely to keep rates unchanged and that it would lead to a short term rally–and we went on to advise taking advantage of that rally to play the short side. That advice paid off big-time by Friday’s close.

The big problem is the Fed pointing toward higher rates in the not-too-distant future–in fact a .25% rate hike has already been factored into September bond prices. Raising interest rates at this point is a delicate operation and they’ll likely want to see the impact of all those mortgage resets before tightening. 30-year mortgage rates have gone up 33 basis points in the last two weeks and a rate hike right now would force even more homeowners into foreclosure as they try to negotiate fixed-rate mortgages. The Fed just got done throwing the kitchen sink at the financial crisis and they are reluctant to change course because one false move right now and the whole house of cards comes tumbling down.

But the truth is they have no choice in the long run–inflation is everywhere and it is just a matter of time until it creeps into the core. On a producer level, the PPI has been “hot” for months. Traders took comfort when the CPI did not move up correspondingly. High food and oil prices have a ripple affect and manufactures are raising prices even if it means selling less product. Both FedEx and UPS said that fuel surcharges are responsible for higher shipping prices and demand is softening. Consequently, they both lowered earnings forecasts for the rest of the year. Dow Chemical announced that they are raising prices by 25% and they are cutting production. Customers are cutting back on their consumption as prices increase.

Meanwhile there is probably no sector that has taken a bigger hit than the airlines–Continental grounded 62 jets and it is laying off 3000 employees. United Air grounded 100 jets and it is laying off 1000 pilots now and 1400 more could be laid off soon. Imagine what this will do to ticket prices and think of the impact on the tourism industry.

In another inflationary development China just re-negotiated iron ore prices with Rio Tinto. Ore prices have doubled since the last negotiation while iron and metallurgical coal prices have skyrocketed leading to astronomical steel prices. Outside of the oil industry there are few if any sectors able to justify new construction. Oil prices dipped temporarily, but they have snapped right back and now look poised for new highs. Global demand outstrips global production while uncertainty in Iran/Nigeria and a hurricane-producing La Nina weather pattern will keep oil prices high.

Central banks around the world are raising interest rates and their economies are feeling the pressure. Global markets are rolling over and its hard to imagine where the strength will come from to avoid a deepening recession. Traders are gradually beginning to lose faith in the theory that global expansion will provide a soft landing for our economy.

The financial sector is getting pounded. MBIA and Ambac are toast now that Moody’s has lowered its rating. These mortgage insurers provided protection to other financial institutions and now that safety net is gone. This morning, Fortis (insurance company) said that they will need to secure additional financing. Last week, Fifth Third Bank said it needs to raise $2 billion. Today, Goldman Sachs said that it believes Citi will take another $9 billion a down and Merrill will take another $4 billion write-down. As the financial sector goes so goes the markets–we are in confirmed bear market until the financials turn around and that could be quite awhile.

The only thing holding this economy above water has been a decent employment picture–but that is changing fast. Jobless claims came in higher than expected and the four-week average sits at 378,000. Continuing unemployment claims rose to 3.14 million–a four-year high. If the unemployment rate continues to climb, our high debt levels will quickly push the country into a much deeper recession. Next week, we will get the Unemployment Report. Last month’s number was very weak and a repeat could push this market down to the double bottom support level established in March. Due to the holiday, the number will be released on Thursday. Traders will brace themselves for a worst-case scenario and the market is likely to drift lower ahead of the number.

Major technical damage has been done. The market broke below support at SPY 138 and it continued to drop, taking out a horizontal support at SPY 132. That was a key support level for two reasons: SPY 132 was the capitulation low from March 2007/August 2007 and in April, we saw two large up gaps from that level as buyers stepped in with confidence. This time around, we only saw a brief bounce from that level and now the “bid” is gone. On a five year chart, a head and shoulders pattern has formed and the neckline has been breached–when major technical patterns form on a five year chart, they need to be respected.

The good news is no matter how dire the economic situation you can make some serious money as the market falls–Trade well and lock up your put positions.

Andy Huang

The stock market today tanked 358+ points or 3% to a new 52-week low. Moving in the other direction, crude prices hit a new intraday record high, crossing the $140 per barrel threshold right after the market have closed in the after market.

Large-cap tech names were among the session’s worst performers as the Nasdaq 100 fell more than 4%. Research In Motion (RIMM 123.46, -18.88) down more than 13% to its lowest level in two months. The company disappointed investors by reporting earnings per share results that were a penny shy of the quarterly consensus estimate. Meanwhile, Oracle (ORCL 21.42, -1.13) disappointed its investors with an underwhelming forecast.

All ten of the major economic sectors finished markedly lower. Five sectors closed with losses in excess of 3%.

Financials (-4.4%) were the session’s worst performing economic sector. According to reports, Goldman Sachs stated Citigroup (C 17.67, -1.18) may incur additional write-downs and may also raise more capital, while Merrill Lynch (MER 33.05, -2.41) may need to raise additional capital as well. Shares of C were added to Goldman’s Conviction Sell List, according to Dow Jones; the stock hit a new 52-week low today.

Also hitting a 52-week low were shares of Dow components General Motors (GM 11.43, -1.38) and General Electric (GE 26.53, -1.46). Goldman Sachs cut estimates for General Motors, while The Wall Street Journal reported GE is having difficulty selling its credit card business.

We have broke all the march low and the market is heading for a breakdown. Be sure to prep yourself with July, Aug, September put position to hedge against weaking economy.

There will be more downside profits to be made in the financials, BAC, C, WB are my top picks for put postions. MMM is also breaking down its support, this stock is heading lower on increasing volume. Make sure you enter your position on any short rally day.

To your success!

Andy Huang

Join over 4,000 fellow members of the Web 2.0 community to celebrate the power and innovation of the East Coast web industry at Web 2.0 Expo New York, September 16–19 at the Javits Center.

Whether you’re a designer, developer, marketer, entrepreneur, business strategist, or technologist, whether you’re a geek or a suit that “gets it,” if you’re looking to understand and harness the changes taking place right now, this is the one event you need to attend this fall.

Conference Tracks

The New York conference agenda includes 4 tracks and a Focus track that takes a look at how Web 2.0 is impacting the workplace and business: Finance, Performance and Scaling, and 2.0 at Work.

• Design & UX
• Development
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• Media & Marketing
• Focus on: Finance
• Focus on: Performance and Scaling
• Focus on: 2.0 at Work

Workshops

In addition to the conference sessions, the workshops give you a hands-on opportunity to master the power of Web 2.0 technologies though a collaborative learning environment.

Expo

Meet face-to-face with over 100 exhibitors to test drive solutions — including some you don’t even know you need yet — and get feedback from your peers in the Web 2.0 community on what’s going to be really valuable to you.

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Web 2.0 Expo has negotiated special rates at several hotels. We recommend you make your hotel reservations for Web 2.0 Expo New York as soon as possible.

See you guys there!

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The planning stages of a business tend to be a bit hectic if for no other reason than they are where you really are given the chance to develop the plan for your business that you will refer to thousands of times over the course of the life of your business.   One of the numerous things that you need to decide during this time (or at the very least give some thought to) is what type of business you are going to run.   This has nothing to do with the actual business niche itself, but rather the actual legal type of business that you are going to be involved in.  There are a number of different business types in the legal sense and while those types vary from country to country, there are general consistencies along a few major distinctions.

The first of those distinctions is the business type known as a sole proprietorship.  This is the most common business type simply because it is the easiest one to start with.   A sole proprietorship consists of the business being wholly owned by one person and therefore being associated with that one person.  The business expenses and liabilities are assumed by that one person, but at the same time that one person has total control over everything that the business does.   Sole proprietorships are free to start in terms of legal registration and do not require a separate tax return in most cases as the income from a sole proprietorship is usually just reported as self employment income.

Taking the next step up from a sole proprietorship, we come to the concept of a partnership.  There are a number of similarities between the two business types and the most obvious ones to point out are that partnerships are cheap and easy to run in the legal sense because all of the partners can usually just report their share as self-employment income rather than requiring another tax return for the business.   The partners also share responsibility for the business by default in a legal sense unless there is an agreement that specifically assigns responsibility to one partner.

Up from a partner is a private corporation.  This is a business that is a separate entity from the people that run it; all of the liabilities are the businesses and for the most part the people running the business can not be held responsible for those liabilities.   However, the maintenance of a corporation requires regular fees to be paid as well as up front registration fees and regular records of the business affairs must be kept along with regular board meetings.   Also, a separate tax return for the business is required because it is a separate entity.

To your continual success!

Andy Huang

Last week I have mentioned about weakness in the banking sector, as I have long a few put position on Wachovia stock hitting a 16 year low.

Here is my result for just few days of trading. $1,167.45 risked to $2922.50 realized. 250% gain in just a short few days. Make sure you continue to scout out the weakness in the financial sector and hedge yourself with more profits in the month of July.

Friday the 13th came as a real black friday for the 4th largest national bank Wachovia (WB), as its stock price tanked to a 52-week low. Wachovia hit a 16 year low with more worries about rising credit losses continue to shock investors in to a panic to dump these stocks. The financial selloff came a day after Cleveland-based KeyCorp (KEY) plunged 24% in the wake of its decision to raise $1.5 billion in new capital and slash its quarterly dividend by half to save money. Other regional banks that have been in free fall this week include Washington Mutual (WM), which has lost half its value in just the last 45 days.

Take a look at the option volume today, as we are only 1 week away from the expiration date of June 20th, which is next Friday.

As you can see an explosive volume today for June 15 Strike, 10x the volume for all previous open interest, and almost 3x more for June 17.50.

Obviously, the big boys are hedging against for more than 5,000,000 shares of WB stocks to sink further within the next few days.

This is opportunity to for you guys to take advantage to make some quick profit with downside weakness with Wachovia on Monday.

Andy Huang