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What do a weakening economy, fear of recession and a falling dollar all have in common? There is probably more than one thing, but on a macro level, they have the ability to create fear and uncertainty. When there is fear and uncertainty, investors get concerned and become defensive. This, in turn, leads market participants to look for defensive stocks to help protect them during the perceived slowdown.

It's a pretty straightforward thought process. When the economy slows, so does the consumer, and that impacts just about everything in the economy that is not a necessity. Consumers will eliminate discretionary purchases ranging from big items, such as cars, to things as simple as dining out.

As the economy weakness and the idea of lower interest rates take hold, the dollar begins to lose steam against other foreign currencies. The falling dollar has a positive impact on the large multinational companies due to their overseas exposure. As the dollar weakens, it translates into more money for these companies as their products become cheaper and more competitive in overseas markets.

The companies that are defensive in nature and have multinational exposure are one in the same. It's the large consumer-staples companies that are household names. These stocks will be the beneficiaries of the current market environment, as liquidity flows to more defensive names. These aren't exactly high-beta volatile issues, but exciting or not, they are doing better and have more room to rally.

There are a lot of names that we can discuss in this regard because just about every large-cap multinational is doing well and has a positive technical configuration. We could use


(MCD) - Get McDonald's Corporation Report



(PEP) - Get PepsiCo Inc. Report



(KO) - Get Coca-Cola Company (The) Report

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Proctor & Gamble

(PG) - Get Procter & Gamble Company (The) Report

as examples, and we like all these stocks from a

technical standpoint.

The one we are focusing on, however, is


(K) - Get Kellogg Company Report

. Again, it's not that much better than the other names we just mentioned, but we like the current setup, and it is the clearest example of the strength we have discussed.

Kellogg is about as basic a consumer staple as you can find. Cereal is in nearly everyone's diet on some level. The stock has been slowly trending higher since emerging from a basing process back in mid-March.

This stock has displayed all the positive technical characteristics we like to see. The strength has been accompanied by increasing volume, a sign of accumulation. Each pullback has occurred on lighter volume, again a sign of strength, as there are few sellers emerging, and it has made a series of higher highs and higher lows, creating a well-defined long-term uptrend.

The recent price action has formed a bullish consolidation that is supportive of higher prices and should lead the stock to new highs. Look for further strength to the $60 to $62 area and use the $53 level as important support. A breach of that level would take the stock off the offensive.

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.