Yesterday's setup: We closed with "Fed Decides Tomorrow" as the headline. Markets at fresh records (Nasdaq +1.9%), score frozen at 5.08 (Short 20%), and everyone waiting for 2 PM ET Wednesday.
Well, the Fed decided. And Powell just threw a bucket of cold water on the party.
The Federal Reserve cut rates by 0.25% as expected (3.75%-4.00% range now, down from 4.00%-4.25%). Markets initially cheered—Nasdaq touched fresh record highs intraday. Then Powell opened his mouth at the press conference:
"A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it."
Boom. Rally over. Here's how the day ended:
- Dow Jones: Down -74 points (-0.2%) to 47,632
- S&P 500: Slightly negative to 6,890
- Nasdaq: The only winner, up +0.55% to a new record of 23,958 (saved by Nvidia)
The economic score? Still 5.08. Still in Short 20% territory. And Powell just validated every ounce of that caution.
📊 Score Stays Defensive: 5.08 (Short 20%)
The Edge Of Markets score sits at 5.08, within the 5.05-5.14 range = Short 20% (defensive positioning).
But here's the twist: QQQ closed at $635.77 (Oct 29 data), well above its 70-day EMA of $591.22. When price is in a strong uptrend and the score suggests being defensive, our backtesting shows that staying long outperforms going short or holding cash.
Final Recommendation: 100% QQQ (EMA Override active)
The score warned of caution. Powell just confirmed it. But the trend kept us invested for Nasdaq's record close. This is exactly why the EMA filter exists—it prevents whipsawing out during strong uptrends, even when fundamentals are deteriorating.
🏦 Powell's Message: The Easy Money Era Is Over
Let's be clear: the Fed delivered the cut everyone expected. 0.25% reduction, bringing rates to 3.75%-4.00%. This is the second straight cut (they also cut in September).
But then Powell dropped the hammer in the press conference. Here's what he said about December:
- "Not a foregone conclusion. Far from it." - Direct quote on December rate cut
- "Strongly differing views" - Committee members debated December extensively
- Vote was 10-2 - Stephen Miran wanted a BIGGER cut (0.50%), Jeffrey Schmid wanted NO cut
Markets were pricing in nearly 100% odds of another cut in December. Powell just told them: "Don't count on it."
Why the hawkish tone? Two reasons:
- Inflation at 3% - Still above the Fed's 2% target, driven by energy costs and tariff-linked items
- Strong Q2 GDP (3.8%) - Economy expanding, no urgent need for aggressive cuts
Translation: The Fed is cutting because they can, not because they must. And if data doesn't cooperate (inflation stays high, growth remains strong), they'll pause.
This is the inflection point. Markets now have to decide: is 3.75%-4.00% enough to keep this rally going?
📉 Classic "Sell the News": Euphoria → Reversal
Here's how the day unfolded:
Before 2 PM ET (Fed announcement):
- Nasdaq touching record highs intraday
- Markets anticipating the cut, pricing it in
- Optimism everywhere
After 2:30 PM ET (Powell's press conference):
- Dow reversed -74 points into the close
- S&P 500 turned negative
- Only Nasdaq stayed green (+0.55%), saved by Nvidia
This is textbook "buy the rumor, sell the news." Markets rallied for days anticipating the cut. When it arrived with a hawkish twist, reality set in: the Fed is done being accommodative.
Key observation: If Nvidia hadn't surged, even Nasdaq would've closed red. This rally is getting narrower—a handful of mega-cap tech stocks carrying the entire market.
📊 The Data Blackout: Fed Flying Blind
Here's something wild: the government has suspended all data collection except for CPI (Consumer Price Index). That means:
- No jobs data (nonfarm payrolls unavailable)
- No retail sales
- No GDP updates beyond Q2
- No manufacturing surveys
The Fed is making trillion-dollar policy decisions with limited visibility. They're relying on Q2 GDP (3.8%) and CPI (3%)—that's it.
This explains the caution. Powell said the Fed sees "economic activity expanding at a moderate pace" and "job gains have slowed this year," but they don't have fresh data to confirm it.
Flying blind at 30,000 feet while making interest rate decisions. What could go wrong?
💰 Bonus: Fed Ends Quantitative Tightening
Buried in the announcement: the Fed will end quantitative tightening (QT) on December 1, 2025.
What's QT? The Fed has been reducing its balance sheet by letting bonds mature without replacing them. This removes liquidity from markets—effectively the opposite of QE (quantitative easing).
Why does ending QT matter?
- More liquidity - Less selling pressure on bonds
- Supports asset prices - More money floating around
- Dovish signal - Fed easing up on tightening
So while Powell killed hopes for a December rate cut, the Fed is still being marginally accommodative by stopping balance sheet runoff.
It's not aggressive stimulus, but it's something. Markets like liquidity.
🎯 My Take: Score's Caution Validated, But Trend Kept Us Long
Let's connect the dots:
- Score at 5.08 (Short 20%) - Been defensive for days, warning of economic deterioration
- Powell's hawkish pivot - Confirms the Fed sees risks, not a green light to go all-in
- Markets reversed after euphoria - Classic sell-the-news behavior
- But EMA override kept us 100% QQQ - Nasdaq closed at records despite the hawkish tone
Here's the thing: the score was right to be cautious. Powell just told markets the easy money train is over. But the trend filter was also right—QQQ is still above its 70 ema, and staying long captured Nasdaq's record close.
This is exactly why the EMA override exists. When the score says "be defensive" but price action is strong, the filter keeps you invested. You avoid whipsawing out of a rally that's still technically intact.
The risk now? If QQQ breaks below $591.22 (the 70 ema), the override ends. At that point, we'd follow the score's Short 20% signal—and that means holding cash, staying defensive, waiting for clarity.
Bottom line: The score warned you. Powell confirmed it. But the trend kept you invested for the record close. Now we wait to see if the rally holds or cracks.
⚠️ Bottom Line: The Narrative Just Shifted
Markets rallied for weeks on the narrative: "Fed's cutting rates, easy money is back, buy everything."
Powell just killed that narrative. He said December is "far from a foregone conclusion", inflation is still at 3% (above target), and the Fed is not on autopilot for more cuts.
The question now: can markets sustain all-time highs with rates at 3.75%-4.00% and no more cuts guaranteed?
What to watch:
- QQQ vs. $591.22 - If price breaks below the 70 ema, the EMA override ends and we go defensive (Short 20%)
- Economic data - If inflation stays high or jobs data weakens (when it returns), Fed's hand is forced
- December FOMC meeting - Markets will price in odds of another cut, but Powell made it clear: don't assume anything
If you're following the score strategy: Stay 100% QQQ (EMA override active) as long as price is above $591.22. If that breaks, shift to Short 20% (the score's base signal).
The easy money era is over. Now markets have to prove they can stand on their own.