Yesterday we talked about the warning signs: 80% of stocks falling while indices hit new highs. Narrow breadth. Concentration risk. A fragile market propped up by five names.
Today, the market delivered exactly what we were watching for.
The Nasdaq crashed -2.04% to 23,348. The S&P fell -1.17% to 6,771. The Dow dropped -0.53% (251 points) to 47,085.
This wasn't random weakness. This was the AI rally cracking under the weight of stretched valuations. And here's the kicker: companies beat earnings and still got hammered.
📊 Score Ticks to 5.08: But EMA Override Keeps Us Long
The Edge Of Markets score rose slightly from 5.04 to 5.08, now in the 5.05-5.14 range. Normally this signals Short 20% (40% SQQQ / 60% Cash).
But here's the conflict: QQQ closed at $619.25, still above its 70-day EMA of $597.48. When price is trending above the EMA and the score suggests going defensive, backtesting shows staying long beats shorts or cash.
Final Recommendation: 100% QQQ (EMA Override Active)
The score is moving toward more defensive positioning (5.04 → 5.08 reflects new economic data, likely JOLTS job openings showing labor market cooling). But the trend filter keeps us invested. If QQQ breaks below that 70 EMA, the override turns off and we follow the score's Short 20% signal.
📉 When Earnings Beats Don't Matter: The Valuation Reckoning
Here's the most revealing part of today's action: companies crushed earnings estimates and still got destroyed.
- Palantir (PLTR): Down -8% despite beating Q3 estimates and raising full-year guidance. Revenue hit $1.2B (vs $1.1B expected), EPS crushed at $0.21 (vs $0.17 expected). AI business growing like crazy. Stock still tanked.
- Uber (UBER): Plunged -6.3% despite beating on EPS ($1.20 vs $0.70 est), revenue solid at $13.47B. Everything looked good on paper. Investors sold anyway.
- Nvidia (NVDA): Fell -4%, giving back Monday's AI euphoria gains.
- AMD: Reported after the close, expecting revenue of $8.7-8.73B (28% YoY growth) and EPS of $1.17. We'll see tomorrow if earnings beats can save semis or if they get the same treatment.
This is textbook late-cycle behavior: good news stops working because valuations are too stretched.
When Palantir beats by 20% and drops 8%, the message is clear: investors are done paying 200x forward earnings for growth. The bar isn't just high—it's impossible.
💸 AI Stocks Shed $500B in Market Cap
The Global X Artificial Intelligence & Technology ETF (AIQ) dropped -3.6% Tuesday as AI stocks collectively erased over half a trillion dollars in market value.
Major movers:
- Amazon, Tesla, Nvidia, AMD all declined significantly despite strong AI narratives
- Microsoft lost ground even after recent strong cloud earnings
- Palantir plunged 9.3% intraday—the poster child for "strong fundamentals don't matter when your stock is up 170% YTD and trading at 200x earnings"
Adding fuel to the fire: Michael Burry (of Big Short fame) disclosed bearish bets on Palantir and Nvidia. When the guy who called the 2008 housing crash is shorting your favorite AI stocks, that gets attention.
Translation: The AI trade isn't dead, but it's being repriced. Hard.
💼 JOLTS Report: Labor Market Cooling (Again)
The Job Openings and Labor Turnover Survey (JOLTS) for September was released this morning at 10:00 AM ET:
- Job Openings (September): Unchanged at 7.2 million
- Hires: Little changed at 5.1 million
- Quits: Unchanged at 3.1 million (workers not confident enough to leave jobs)
- Layoffs: Unchanged at 1.7 million
Context: Job openings peaked at 12 million in early 2022. We're now at 7.2M—a 40% drop. The quit rate (a measure of worker confidence) is trending lower, meaning people are holding onto jobs because they're uncertain about finding better ones.
Meanwhile, Indeed's Job Postings Index hit 101.9 as of Oct 24—the lowest since early February 2021. Employment opportunities are at 4.5-year lows.
This is why the score moved from 5.04 to 5.08. The labor market is softening, and when companies stop hiring and workers stop quitting, that's a sign of economic uncertainty ahead.
📈 The Rare Winner: Yum! Brands
In a sea of red, a few names managed to rally:
- Yum! Brands (YUM): Jumped +6.1% after strong quarterly results driven by Taco Bell growth. The company also announced it's considering selling its Pizza Hut unit, which investors liked.
That's about it for the upside. The rest of the market was a bloodbath.
🔗 Yesterday's Warning, Today's Reality
In yesterday's post, we highlighted a critical problem: 80% of S&P 500 stocks were trading below their 200-day moving averages despite the index hitting new highs.
We called it "classic late-cycle market behavior: narrow leadership, weak breadth, concentration risk."
We said the rally was "paper-thin" and "fragile," propped up by five mega-cap names (Amazon, Nvidia, Microsoft, Apple, Meta).
Today was the confirmation. When a rally is driven by a handful of stocks and those stocks are stretched on valuation, it doesn't take much to knock the whole thing down. And that's exactly what happened.
🎯 My Take: This Isn't Over
Here's what today tells me:
- The AI rally is exhausted. When Palantir beats by 20% and still drops 8%, that's a sign investors are done chasing. Valuations got ahead of reality.
- The score is moving the right direction. 5.04 → 5.08 isn't huge, but it reflects deteriorating data (JOLTS, labor cooling). We're one tick away from High Risk territory (5.04 = Short 50%).
- Breadth is terrible. Yesterday's 80% warning was validated today. This isn't a healthy market.
- Earnings beats don't matter when valuations are too high. Uber and Palantir proved that. Markets are repricing risk.
- The EMA override saved us... for now. If we'd gone Short 20% based on the score alone, we'd have missed the Nasdaq rally. But if QQQ breaks below $597 (the 70 EMA), that override turns off and we follow the score.
The question now: Is this a one-day shakeout, or the start of a deeper correction?
Watch the score. If it drops to 5.04 (High Risk = Short 50%) or below 4.95 (Extreme Risk-Off = Short 100%), we're entering serious defensive mode. The trend is clearly shifting.
⚠️ Bottom Line: The Market Is Repricing AI Valuations
We called the warning signs yesterday. Today, the selloff arrived on schedule.
The Nasdaq fell 2%, tech got crushed, and even earnings beats couldn't save stocks from profit-taking. The score moved to 5.08 (Short 20% range), but the EMA override keeps us at 100% QQQ... for now.
This isn't a random dip. This is the market realizing that AI valuations got ahead of themselves, that breadth is terrible, and that the economic data (JOLTS, labor cooling) doesn't support the rally narrative.
If you're following our strategy: We're at 100% QQQ (EMA override). But watch that $597 level on QQQ. If it breaks below the 70 EMA, we follow the score to Short 20%. If the score drops to 5.04 or lower, defensive positioning increases sharply. Pay attention.
AMD earnings reaction tomorrow will be key. If semis get the same treatment as Palantir/Uber despite strong results, the AI repricing continues.