Even though the market is up, the rally could have moved higher for those long stocks, Aaron Task told "RealMoney" radio show listeners Friday, emphasizing that this could mean that it's time for investors to get defensive. Task, co-executive managing editor of TheStreet.com, was filling in for host Jim Cramer.

He acknowledged that the producer price index report delivered bad news in the form of a core inflation reading that came in twice as high as expected -- a sign that inflationary pressures are here for real.

This is likely mean more rate hikes from the Federal Reserve, which is, generally speaking, bad for stocks and the economy, he said. But Task believes the market has come to terms with the possibility of more monetary tightening, as evidenced by the fact that stocks weren't knocked down by the news.

Instead, the said the cautious rally is due to the fact that the market is no longer in a bullish state of mind and that the market's fundamental characteristics are changing.

He pointed to the recent spate of tech earnings as evidence, saying that a market in bull mode wouldn't have had such strongly negative reactions to results from Applied Materials ( AMAT - Get Report), Dell ( DELL) and Nvidia ( NVDA - Get Report).

The bearish tone is here, and maybe it's time to play defense he said. Task added that this doesn't mean bailing on the market. It just means thinking about which sectors are primed for a rebound if market participants get defensive and start being concerned about the pace of growth. It also means being more careful about sectors that have had a tremendous run.

He suggested that the telecom service sector could be one place to consider in this environment.

He also said now would be a good time to rethink emerging market debt, which has been a highflier, now that the segment has had a tremendous run higher and some more socialist leaders have been elected in South American countries.

With regards to emerging market debt, Task said it once seemed that the rising tide lifted all boats, but that now it's time to inspect those boats and determine which ones are truly seaworthy.

Positive Thinking

Task was joined by John Layfield, a celebrity investor columnist for TheStreet.com, who also said there are underlying things in the market that are very positive, including low unemployment and the fact that rate hikes will end, even if they don't end as soon as investors had anticipated at the end of 2005.

Layfield added that a housing slowdown could benefit the economy in two ways. First, it could boost consumer savings. Second, all the money that left stock for higher returns in real estate could come right back into the stock market.

He reminded listeners not to panic about a housing market slowdown, saying we are "seeing a bit of a decline... certainly not a crash, maybe not even certain it will be a correction."

This is because a house is not like a stock, he said. You live in your home and won't just flip it, so the market may slow but is unlikely to take a sharp fall.

A listener asked about Krispy Kreme ( KKD), since the stock has been rebounding a bit.

Task was bearish, saying that he doesn't know why anyone would own it for anything other than a trading vehicle. "They've oversaturated the marketplace," he said. "It's a fad stock ... that fad has passed."

But Layfield said that the company is trying to squeeze some life out of the U.K. by starting the fad overseas. He pointed out that the stock could get another lift if Brits embrace the donut.

Layfield also said that his visits to the Middle East have made him a fan of Turkcell ( TKC - Get Report), a cell-phone company based in Turkey. This is because he believes that the Middle East will jump straight to wireless, rather than set up any landlines. In that case, Layfield believes Turkcell would be a winner.

Task told a caller that there is a possibility that Nabors ( NBR) is bouncing.

He pointed out that even though there was an energy selloff, he doesn't think the energy bull market is over. Layfield agreed, saying that the nation has yet to resolve problems of fuel supply and demand.

Both agreed that now is a time to hold off on Dow Chemical ( DOW). The stock has been moving higher and that it could get hit if natural gas prices come back up.

Radio Waves

Scott Moritz, a senior writer at TheStreet.com, joined Task to talk about XM Satellite Radio and Sirius ( SIRI - Get Report), two stocks that have been "taking it on the chin."

Even though Sirius bagged over a million new subscribers, a number that Task said was largely attributable to Howard Stern, the stock still fell. Moritz said it's because of costs.

For starters, Moritz said that it costs a lot to bring subscribers in and that both companies are paying a lot for talent, but that neither company has shown a return for all this spending.

He told Task that this is a wake-up call, adding that the resignation of Pierce Roberts from XM's board of directors is a red flag. In his resignation letter, Roberts said he was leaving because XM's current path was troubling, Task said.

Moritz also said that the hyper-growth seems to be over for Sirius, and that means the stock will lose the momentum players.

A caller wanted to know if now was a good time to buy Applied Materials, which fell after reporting decent quarterly results. Task said that he found the poor reaction to the company's quarter "a very troubling sign, not just for Applied Materials, but for semis in a broader sense."

He added that semiconductor stocks are often a leading indicator for what the tech sector will do, and said that he would be very careful about buying any Applied Materials.

He told another caller that even though Marvell ( MRVL - Get Report) could report a good quarter, he is wary of buying any company in front of the earnings because you never know how Wall Street will respond even to good news.

If it's truly a mad money type of play, meaning that if you lose it your quality of life won't take a hit, Task said that it might be all right to take a look at RF Micro Devices ( RFMD).

Aaron L. Task is the co-executive editor of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Click here to send him an email.