📊 Score at 5.35: The Most Painful Momentum Signal in Months
The Edge Of Markets score sits at 5.35 (Momentum: 60% QQQ / 40% TQQQ), where it's been camping since early February—bouncing between 5.35 and 5.37 like a metronome. The model sees a healthy economy: low inflation, stable employment, Fed on pause. And it's not wrong about any of that.
The problem? QQQ closed today at $601.30, down 4% from February 2nd's $626. That's $17 below the 70-day EMA of $618.32. If you've been following the Momentum recommendation this month, your 60/40 QQQ/TQQQ portfolio has taken a beating—roughly 7% drawdown while the model kept saying "stay aggressive."
No EMA override here—the score is above 5.15, so the EMA filter doesn't kick in. We follow the score directly.
Final Recommendation: 60% QQQ / 40% TQQQ
I'll be honest: the score is reading the economy correctly and losing money doing it. More on why below.
🎢 Today's Session: The Recovery That Barely Counts
Markets came back from the Presidents Day weekend and immediately panicked. The S&P 500 dropped nearly 1% intraday as tech led the selling—again—before a late-afternoon scramble pulled indexes back to roughly flat:
- S&P 500: 6,843 (+0.10%)
- Nasdaq Composite: 22,578 (+0.14%)
- Dow: 49,533 (+0.10%)
- QQQ: $601.30 (-0.10% from Friday)
Amazon finally snapped a nine-day losing streak, bouncing 1.2% to $201 as investors took a breath from the AI spending panic. Norwegian Cruise Line ripped 12% after Elliott Management disclosed a 10%+ activist stake. Walmart dropped 3.8% ahead of Wednesday earnings.
The close looks calm. It wasn't. The VIX is holding above 21—near its 2026 highs—and the intraday action screamed "risk off" before the late-day Hail Mary. Closing flat after being down nearly 1% might sound like a win, but it's the kind of win where you're just happy you didn't break anything.
🤖 Week Three of the AI Scaries: This Isn't About the Economy
Let's be crystal clear about what's driving this selloff: it's not the economy. CPI came in at 2.4% last Thursday—best reading in 8 months. Fed Funds rate is steady at 3.64%. Jobless claims are manageable at 227K. The macro picture is objectively fine.
The market is selling because Wall Street had an existential crisis about AI. Over $1.35 trillion in market cap vaporized from the mega-cap tech complex in a single week in early February. The thesis? Big Tech is spending $660 billion on AI infrastructure in 2026 with no clear path to near-term returns, while the software companies they're supposed to be empowering are watching their business models get disrupted by the very AI they helped build.
It's a paradox that would make a philosophy professor weep: AI is simultaneously too expensive to build and too cheap to charge for. Nvidia's capex customers keep spending, but their customers' customers are asking "wait, do I even need enterprise software anymore if an AI agent can do it?"
Traders are calling it the "AI Scaries," and three weeks in, the fear hasn't faded. Alphabet down 6.7% last week. Meta down 6.1%. Apple down 5.3%. This is sector-wide capitulation that has nothing to do with unemployment or inflation. That's why the score is "wrong" on the trade but "right" on the data.
📈 Credit Spreads: The Quiet Warning Nobody's Talking About
While everyone's fixated on AI headlines, there's something brewing in the bond market. High Yield OAS has widened from 2.64 to 2.94 in three weeks—an 11% move. The BAA-10Y spread climbed from 1.59 to 1.72 over the same period.
Meanwhile, the 10-Year Treasury yield has dropped 25 basis points from 4.29 to 4.04 since early February. That's a textbook flight-to-safety move—money rotating out of risk assets and into government bonds.
None of these levels are screaming "panic" on their own. But the direction matters. When credit spreads widen and Treasury yields drop simultaneously, the bond market is telling you it's getting nervous about something the equity market hasn't fully priced in.
Gold pushing above $5,000 tells the same story. Money is looking for shelter. The question is whether the storm actually arrives or this is just thunder with no rain.
🎯 My Take: The Model Isn't Broken, But It's Bleeding
Here's the uncomfortable truth: the score has been at Momentum for weeks, and QQQ has dropped 4% this month. Following the leveraged recommendation has been painful. I'm not going to sugarcoat that.
But here's the nuance—the model is built to read economic reality, not market sentiment. And the economic reality is that CPI is cooling, employment is holding, and the Fed is on pause at 3.64%. By every traditional measure, this is an environment where you want to be long equities.
What the model can't read is a market-wide existential crisis about whether AI will eat the entire software industry. That's not an economic data point. It's a narrative. And narratives can move markets for weeks before reality catches up—or before the narrative itself becomes reality.
The score is doing its job. The market is doing something the model wasn't built to predict. Eventually one of them has to be wrong. My money—literally—is on the economic data. But "eventually" is doing a lot of heavy lifting in that sentence, and your portfolio doesn't care about being right later.
⚠️ Bottom Line: Holding Momentum Through the Storm
Score: 5.35 (Momentum). QQQ at $601.30, well below EMA 70. No override. The recommendation stays leveraged long.
Watch this week:
- Walmart earnings Wednesday: Consumer health check from the biggest retailer in America—any weakness here shifts the narrative from "AI panic" to "economy panic"
- QQQ $600 level: If this breaks convincingly, the technical picture gets ugly fast
- Credit spreads: HY OAS approaching 3.00—a level that historically starts to matter
- Nvidia earnings (Feb 26): The ultimate AI reality check. If Jensen can't reassure the market, nobody can
The economy says buy. The market says wait. The credit market is starting to whisper "be careful." Pick your religion.