Early signs of a weakening economy

Gary Kaltbaum is an investment advisor with over 18 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show "Investors Edge" on over 50 radio stations. Gary is also editor and publisher of "Gary Kaltbaum's Trendwatch"...a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary's Daily Market Alerts click here or call 888.484.8220 ext. 1.

The market snuffed the problem out again. In our latest missives as well as on Fox News Channel, we have stated that the problem with the market was NOT inflation, it was a slowdown in growth around the world. It was simple. The MARKET was getting hit hard. COMMODITIES were getting smacked. The BOND MARKET was RALLYING. DEFENSIVE issues like (HNZ | Quote | Chart | News | PowerRating), (CL | Quote | Chart | News | PowerRating), (PEP | Quote | Chart | News | PowerRating), (KO | Quote | Chart | News | PowerRating), (BUD | Quote | Chart | News | PowerRating) and others started to lead. DEFENSIVE issues are notorious for leading when the economy slows. This was all great forensic evidence as we are now already seeing clear signs that the economy is now in a marked slowdown.

Normally, this is a technical analysis report...but we can't help putting our two cents in when things stand out. We now believe the FED will DEFINITELY halt its rate hikes...for this second. But going forward, the problem for the FED will be simple. What happens if growth slows but inflation continues to pick up and the dollar continues to swoon? That's what we mean by the FED being in a box. What will they try and defend first? Should be fun.

Nothing has changed in our stance. Since 5/11, we have been very bearish and see no reason to alter our thinking just yet. Every attempted bounce has been short in duration and anemic at best. Tuesday's action was a great case in point. Despite a strong open, despite a ridiculously oversold and extended condition to the downside and despite fear picking up...the market couldn't even hold its bid for a day. The combination of a higher open and a down close is an important characteristic of a weak market.

Other notes:

We continue to believe BONDS are now in rally mode. Longer-term, BONDS are still in a bear market but near-term, we expect more upside testing.

WORLD MARKETS continue to act horrid. Our thesis on EMERGING MARKETS is unfortunately ringing true as many have busted open at the seams. You have been reading about the carnage in India, Russia and many other areas. It is also a distinct negative the Europe is now in a strong bear phase. Europe had held up very well until recently.

Except for DEFENSIVE issues and a smattering of strong stocks, most stocks and sectors are now in horrid shape. Volume and price patterns have been that bad. We do not doubt that at any time, this market can bounce but if we continue to see the type of bounces we have been seeing, the market has no chance...and will continue lower.

Be very careful about all the Wall Streeters that will tell you that it is bullish if the FED stops hiking rates or if COMMODITY prices come down. The market has its way of doing the unexpected...and unfortunately, just about everyone believes the market HAS to rally if the FED halts the hikes. As always, we would rather let the market decide by showing signs of accumulation. So far...nothing doing!

Lastly, we wish everyone a great holiday weekend. But while you are having a good time at the beach or the parks, just remember what Memorial Day is all about. We are not who we are and we are not where we are without the courageous efforts of all who fought for this great country. God Bless!

Gary