📊 Score vs. Trend: The EMA Override in Action
The Edge Of Markets score sits at 5.06, within the 5.05-5.14 range (Cautious). Under normal circumstances, that signals 40% SQQQ / 60% Cash—defensive positioning.
But here's where it gets interesting: QQQ closed at $608.89, well above its 70-day EMA of $597.46. When price is in an uptrend (above the 70-day EMA) 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 warns of caution, but the trend says stay invested. This EMA filter has historically prevented costly whipsaws during strong uptrends. The conflict between defensive signals and bullish price action is worth watching closely.
📈 Third Day of Gains: Rally Continues
Tuesday's session was all about continuation. After Friday's brutal selloff following the Nvidia earnings reversal, markets have now posted three consecutive winning sessions:
- Dow Jones: Surged 664.18 points (+1.43%) to close at 47,112.45
- S&P 500: Gained 0.91% to settle at 6,765.88
- Nasdaq Composite: Climbed 0.67% to finish at 23,025.59
What's notable is that these gains came after early-session weakness. At session lows, the S&P 500 was down about 0.7%, while the Dow and Nasdaq dropped more than 100 points and 1%, respectively. Markets reversed course and rallied into the close.
That intraday reversal—selling early, buying late—signals conviction, not just short-covering. Buyers stepped in aggressively when prices dipped.
💰 Fed Rate Cut Odds Jump to 83%
The catalyst for today's rally? Growing confidence that the Fed will cut rates in December.
According to the CME FedWatch tool, markets are now pricing in an 83% probability of a 25 basis point rate cut at the December FOMC meeting. That's a significant jump from earlier this week, when uncertainty around Fed policy was dragging down risk assets.
Here's the backdrop:
- PCE inflation (August): 2.7% headline, 2.9% core—still above the Fed's 2% target
- GDP growth (Q3): Atlanta Fed's GDPNow model estimates 4.0% annualized growth
- September FOMC: Fed already cut rates by 25 basis points to 4.0-4.25% range
The economic data remains resilient—GDP growth above trend, inflation slowly declining but sticky. Yet the Fed has signaled a path toward further easing, and markets are taking that seriously.
For stocks, the message is clear: lower rates are coming, and that's supportive of valuations, especially in growth sectors like tech.
🔥 Nvidia vs. Alphabet: The AI Chip War Heats Up
While the broader market rallied, there was a fascinating rotation happening beneath the surface: Nvidia down 3%, Alphabet up 4%.
The catalyst? A report from The Information claiming that Meta Platforms is considering spending billions of dollars on Alphabet's AI chips as an alternative to Nvidia's dominance in AI infrastructure.
This is a big deal. Nvidia has essentially monopolized the AI accelerator market, with hyperscalers like Meta, Microsoft, and Amazon all relying on Nvidia's GPUs to train large language models. If Alphabet's chips (Google's TPUs) become a legitimate alternative, it threatens Nvidia's pricing power and market share.
What this means:
- For Nvidia: Competition is finally emerging. The "Nvidia is the only game in town" narrative is cracking.
- For Alphabet: This validates their multi-billion dollar investment in custom AI chips. If they can capture even 10-15% of the AI chip market, that's a massive new revenue stream.
- For Meta: Diversifying chip suppliers reduces dependency on Nvidia and potentially lowers costs.
The market's reaction—punishing Nvidia, rewarding Alphabet—shows that investors are taking this threat seriously. Nvidia's dominance isn't guaranteed forever.
📉 November Still Down Despite Rally
It's easy to get caught up in three days of gains and forget the bigger picture. Zooming out, November has been rough:
- S&P 500: Down about 1% month-to-date
- Nasdaq: Down approximately 3% for November
- Dow: Down roughly 1% month-to-date
Tech has been the biggest loser. The Nasdaq's 3% decline reflects continued rotation out of high-valuation AI stocks and into more defensive sectors. Even with this week's bounce, the index is struggling to reclaim its October highs.
The question is whether this rally has legs or if it's just a relief bounce before the next leg down. The score (5.06 = Cautious) suggests the model isn't convinced the coast is clear. But the trend (QQQ above 70-day EMA) says don't fight the uptrend.
🎯 My Take: The Trend vs. Fundamentals Disconnect
Here's the fascinating setup: the score is at 5.06 (Cautious range), suggesting economic signals are mixed and defensive positioning makes sense. Yet QQQ closed at $608.89, well above its 70-day EMA of $597.46, signaling a strong uptrend.
This is the classic conflict: fundamentals say be careful, technicals say stay long.
Our backtesting shows that when this conflict arises, the trend usually wins. Fighting a strong uptrend—even when the score says be cautious—has historically cost money. The EMA override exists for exactly this reason: to avoid whipsawing out of rallies that continue despite mixed signals.
But here's the risk: when the trend finally breaks (QQQ falls below the 70-day EMA), the reversal can be swift and brutal. We saw this on November 20, when Nvidia beat earnings and markets still crashed. The score was at 5.14 (Cautious), QQQ was below the EMA, and there was no override. The signal was clear: stay defensive. And it worked.
Right now, the override is telling us to stay 100% QQQ despite the cautious score. That's the right call as long as price stays above $597.46. But if QQQ breaks below that level, the defensive signals will align with the trend, and it's time to move to 40% SQQQ / 60% Cash immediately.
⚠️ Bottom Line: Trust the Override, Watch the EMA
The score (5.06) says be cautious. The trend (QQQ above 70-day EMA) says stay long. The EMA override resolves this conflict by keeping us 100% QQQ while the uptrend holds.
Today's rally—Dow +1.43%, S&P +0.91%, Nasdaq +0.67%—validates this approach. Fed rate cut odds jumped to 83%, tech rebounded despite Nvidia/Alphabet drama, and buyers stepped in aggressively on early-session weakness.
But don't get complacent. November is still down, the Nasdaq is off 3% for the month, and the score is in cautious territory for a reason. Economic signals are mixed, inflation is sticky at 2.7%, and competition in the AI chip market is emerging.
Final Rec: 100% QQQ (via EMA override) as long as price stays above $597.46. If QQQ breaks below the 70-day EMA, immediately shift to 40% SQQQ / 60% Cash per the score. The trend is your friend until it's not—watch that $597.46 level closely.