Early signs of a weakening economy

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!