This morning's post: "Fed Cuts Rates, Powell Kills the Rally." We covered Powell's hawkish pivot, his "December is far from a foregone conclusion" bombshell, and a score frozen at 5.08 (Short 20%).
Now, post-market: The score dropped to 5.04. That's right at the edge—one more tick down and we're in Short 50% territory.
And despite Trump announcing a partial trade deal with China today, markets barely budged. Here's what that tells us:
The Fed problem is bigger than trade relief.
📉 Score Drops to 5.04: We're at the Edge
The Edge Of Markets score fell from 5.08 this morning to 5.04 as of 5:43 PM ET.
What does 5.04 mean?
- Score range: 4.95-5.04 = Short 50%
- We're literally sitting at the top of this range
- One more tick down (to 5.03) = significantly more defensive positioning
But here's the override: QQQ closed at $626.05, still well above its 70-day EMA of $592.12. When price is above the EMA and the score suggests being defensive, our backtesting shows staying long beats going short.
Final Recommendation: 100% QQQ (EMA Override still active)
The score is screaming caution—louder than this morning. But the trend filter keeps us invested. This is the conflict: fundamentals deteriorating, but price action still holding. How long can this last?
🤝 Trump-Xi Trade Deal: Small Gestures, Muted Reaction
President Trump met with Chinese President Xi Jinping in South Korea today and announced a partial trade agreement. Here's what was agreed:
- Tariff reduction: Fentanyl-related tariffs cut from 20% to 10%
- Overall tariff rate: Drops to 47% from 57%
- China's commitments: Restart soybean purchases, delay rare earth export controls for 1 year
Market reaction? Barely anything:
- Dow: +0.16% (basically flat)
- S&P 500: -0.0044% (rounding error)
- Nasdaq: +0.55% (modest gain, but that's tech doing its own thing)
Analysts called it "small gestures" rather than a "grand bargain." And they're right. This isn't a comprehensive deal—it's tariff tweaks and agriculture promises.
Translation: Markets see this for what it is—incremental progress, not a game-changer.
🎯 What's Really Happening: Powell's Hawkish Pivot Is the Story
Here's the key insight: Trade news used to move markets big time. Remember the 2018-2019 trade war? Every Trump tweet, every tariff announcement would swing the S&P 2-3%.
Today? A partial trade deal with China—the world's second-largest economy—gets announced, and markets shrug.
Why? Because the Fed problem is bigger.
Yesterday, Powell said December rate cuts are "far from a foregone conclusion." Markets that were pricing in nearly 100% odds of a December cut now see only 67%. Treasury yields surged:
- 10-year Treasury: Above 4.0%
- 2-year Treasury: Above 3.6% (highest in a month)
This is the market repricing the Fed's path. And it hurts. Higher yields = higher discount rates = lower valuations for stocks (especially growth/tech).
QQQ has gained 5 days in a row, riding Nvidia and mega-cap tech strength. But beneath the surface, the cracks are forming:
- Dow barely positive
- S&P flat
- Only tech keeping the rally alive
This is a narrowing rally—a handful of stocks doing all the work. That's not a healthy market.
✅ The Score Saw This Coming
Let's connect the dots:
- Oct 28: Score at 5.08 (Short 20%), markets hitting all-time highs
- Oct 29: Fed cuts, Powell turns hawkish, Nasdaq reverses intraday
- Oct 30 (today): Score drops to 5.04 despite trade deal news
The score didn't get fooled by the rally. It stayed defensive. And now we're seeing why.
Key observation: The score dropped even as a trade deal was announced. That means the underlying economic data our model tracks is deteriorating faster than trade relief can offset.
This is what a good model does—it doesn't get distracted by headlines. It tracks fundamentals.
⚠️ Bottom Line: The Fed Problem Is Bigger Than Trade Relief
Score at 5.04 (Short 50% range), QQQ above EMA = Final rec: 100% QQQ. But we're sitting at the edge.
Here's what we know:
- Powell killed December cut hopes – Markets repricing, yields surging
- Trade deal didn't help – Markets barely reacted to Trump-Xi agreement
- Score dropped anyway – Fundamentals deteriorating despite trade relief
- Rally narrowing – Only mega-cap tech (QQQ) holding up
The strategy:
- Stay 100% QQQ while price is above the 70-day EMA ($592.12)
- Watch that EMA closely – If QQQ breaks below it, the override ends and we follow the score (Short 50%)
- Monitor for score improvement – If it climbs back above 5.05, we're back to Short 20%
- If score drops below 4.95 → Short 100% (maximum defensive)
One more point down (5.03) and we're officially in Short 50% territory. The next few days are critical.
Powell's hawkish pivot isn't going away. Trade deals are nice, but they don't fix the fundamental problem: the Fed is done being accommodative, and markets are priced for perpetual easy money.
Stay disciplined. Follow the score. Trust the EMA override. And don't get distracted by trade deal headlines when the real story is the Fed.