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QE Fatigue Spreads from Transports to Semiconductors

NEW YORK ( TheStreet) -- Whenever a central bank announces a quantitative easing move, stocks have rallied. These rallies are not based upon improving fundamentals but are the result of market speculation.

Over the past two weeks we have seen some weaker than expected economic data and earnings warnings from benchmark companies. This real world information shows traders and investors that global quantitative easing moves are not helping the global economies.

Last week's earnings warnings in the transportation sector from FedEx (FDX - Get Report) and Norfolk Southern (NSC - Get Report) caused the Dow Transportation average to plunge 305 points last week, a loss of 5.8%.

Last Friday I wrote QE Fatigue Plagues Transports, May Be Contagious and this week QE fatigue spread to Semiconductors, which I wrote about on Tuesday in The SOX May Provide Another Warning.

On Tuesday the PHLX Semiconductor Sector Index broke below its 50-day and 200-day simple moving averages, a key technical warning that QE fatigue spread to the SOX.

Among the warnings of QE fatigue this week was lowered earnings guidance from Caterpillar (CAT - Get Report) who drastically cut earnings expectations through 2015.

Thursday morning we learned that the final reading for second quarter GDP was lowered to 1.3% from 1.7% in the prior two estimates, and that durable goods orders fell by an unexpected 13.2% in August, the biggest decline since January 2009.

Stocks ignored this real world data Thursday morning and rebounded on expectation of a QE move out of China. Even so, I predict that QE fatigue is contagious and will spread to other sectors as we begin the fourth quarter next week.

Third quarter earnings season begins in October and I would not be surprised to see companies beat on earnings per share, but miss on the revenue line. I also believe that weaker forward guidance will be a story from a more than normal number of companies throughout the third quarter earnings reports.

Today's weekly closes are important for my proprietary analytics and today's closes are also monthly and quarterly closes. This results in new monthly and quarterly value levels, pivots and risky levels for every market and every stock in the www.ValuEngine.com data bases.

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