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Markman: It’s Time for a Coffee (Stock) Break

Defensive stocks are the current stars of the market

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In recent days, fewer than 150 stocks across the three U.S. exchanges have hit new highs. That’s very few, yet some are very interesting — and indicative of a new trend.

Coffee seems to be a big deal right now, possibly because prices of the commodity are coming down. Peet’s Coffee (NASDAQ:PEET), which admittedly makes a mean latte for a chain, rose by 3.5% in the past week, .while Minneapolis-based chain Caribou Coffee (NASDAQ:CBOU) rose 7%.

Also hitting a new high in the past week setting an eight-month base was Ruth’s Hospitality (NASDAQ:RUTH), which runs the Ruth’s Chris Steak House chain (maybe they do an especially nice job with after-dinner espressos). Also trading well has been hamburger king McDonald’s (NYSE:MCD) and toothpaste giant Colgate-Palmolive (NYSE:CL).

I’m getting a food theme here, which makes sense, considering that even when an economy does a face-plant people need to keep eating, brushing their teeth and drinking coffee. One thing we can say for sure is that if these stocks start to go the way of the techs and metals, then we really know the market is in the soup.

Speaking of which, let’s turn our attention to the New Lows list. This is where a lot of troublesome signaling lies because there are a ton of former leaders on this list. It’s not just Research In Motion (NASDAQ:RIMM), which has sunk below its bear market lows now.

And it’s not just funky recent Chinese IPOs that I have been high-lighting as short candidates in my Traders’ Advantage letter, such as Qihou 360 (NASDAQ:QIHU), Renren (NYSE:RENN), or E-Commerce China Dangdang (NASDAQ:DANG) — all of which trade more than a million shares a day and are being annihilated, as well they should be.

For our purposes, I’m talking more about semiconductor and storage stalwarts such as Marvell Technology (NASDAQ:MRVL), Nvidia (NASDAQ:NVDA) and wafer giant MEMC Electronic Materials (NYSE:WFR), as well as light-emitting diode leader Cree (NASDAQ:CREE).

Thes charts of these stocks don’t just look bad, they look bad with a bullet through the heart. Understand that Cree, shown is a $4 billion maker of LED chips that are supposed to turn the electricity-wasting ways lighting the U.S. and Europe on their head. Its chips are also used in video screens, gaming displays, and automobiles. Investors have absolutely abandoned this stock just as they have many other chip makers due to expectations that growth is slowing not just a little, but a lot.

In large part, that is the message we are supposed to hear from the Weekly Leading Index of the Economic Cycle Research Institute. The growth rate of the WLI slowed to 3.7% from 4.1% in the prior period, and the monthly growth rate of the WLI was logged at 4.4% in May, down from 5.8% in the prior period.

The WLI helps us look around the corner of U.S. economic growth — it’s not a model that extrapolates from the recent past into the near future. It is forecasting that growth on the six-month horizon is slowing.

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