Wall Street banks are crushing earnings — ride the momentum on Goldman and Morgan Stanley

Verdict: promising thesis, premature trade — wait for ADX confirmation

The idea that Wall Street trading desks are firing on all cylinders has genuine fundamental teeth — Goldman's diluted EPS surged roughly 154% year-over-year to $51.32 and Morgan Stanley's grew 28.4%, with both firms posting top-quartile ROE among Financials peers. But the trade itself is not ready: ADX sits at 10.42 for GS and 4.28 for MS, both far below the 25 threshold the strategy requires, meaning there is no confirmed trend to ride. The single-trade backtest (one winner, 5.66% return, 1.6% max drawdown over 60 months) shows shallow risk when conditions do align, yet walk-forward testing across three folds produced zero triggers and no robust setup was established — one observation cannot validate a rule set. Goldman's negative $47.2 billion free cash flow, sitting at the 0th percentile among 622 sector peers, is a deeper concern the earnings narrative does not address. Wait for ADX to climb above 25 alongside confirmed volume before deploying capital. **Conviction Breakdown:** - **Thesis support (65):** The earnings narrative is backed by real numbers — 154% EPS growth at GS, 28.4% at MS, and ROE rankings in the 81st and 84th percentiles — but the thesis glosses over Goldman's cash burn and rising leverage at both firms. - **Trade readiness (25):** Neither stock is near triggering. GS needs ADX to rise 14.58 points and MS needs a 20.72-point move just to reach the 25 threshold. - **Risk quality (55):** The symmetric 10% stop and take-profit cap upside, while the expected portfolio drawdown of roughly 44% suggests this basket is still a leveraged-equities trade despite near-zero correlation. - **Backtest evidence (30):** One winning trade over five years carries no statistical weight; walk-forward testing was rejected for insufficient trades across every variant tested. - **Fundamentals trend (70):** Earnings and profitability metrics are strong and sector-leading, though the free cash flow deterioration and climbing debt-to-equity ratios at Morgan Stanley (from 2.10 to 3.06 over five years) temper the picture.

Trade now

Neither GS nor MS is at an entry today. The strategy needs three conditions to fire simultaneously on the daily chart: price crossing above the 50-day simple moving average, on-balance volume above zero, and a 14-period Average Directional Index (ADX) above 25. On GS, price is at $1,065.22 — already $28.57 above its 50-day moving average at $1,036.65, so the moving average cross condition reads as near. On MS, the same condition is also near, with price at $215.50 versus the $211.02 moving average. However, ADX is the hard blocker right now: GS reads 10.42 and MS reads 4.28, both far below the 25 threshold needed to confirm a genuine trend. On-balance volume is currently unavailable. The completed backtest evidence supports the wait. Over the five-year evaluation window, the strategy produced one trade on GS, returning 5.66% with a maximum drawdown of just 1.60%. A separate two-year GS window mirrored this resilience, returning 5.43% with a 1.28% drawdown. No robust parameter setup was established beyond the baseline; every walk-forward variant was rejected for producing fewer than six trades. Concretely, "wait" means monitoring the daily chart for ADX to climb above 25 — currently 14.58 points away on GS and 20.72 points away on MS — alongside confirmed positive on-balance volume. If an entry triggers on GS at $1,065.22, the fixed stop loss sits 10% below at roughly $958.70 and the take-profit target sits 10% above at roughly $1,171.74, yielding an effective reward-to-risk ratio of 1:1 before the 60-day time stop closes the position.

Earnings momentum is real — Goldman's profitability backs the thesis

The fundamental case rests on genuine earnings firepower. Goldman Sachs reported diluted EPS growth of roughly 154% year-over-year, landing at $51.32 per share — a number that directly supports the idea's claim of a "blowout quarter." Per the CNBC piece on July 14, analysts raised their price target on the back of that result and an upbeat outlook. Morgan Stanley's…

Scores

• Conviction score breakdown: 49
• Thesis support: 65
• Trade readiness: 25
• Risk quality: 55
• Backtest evidence: 30
• Fundamentals trend: 70

Watch items

• GS — ADX (14)
• MS — ADX (14)
• GS — OBV
• MS — OBV
• GS — RSI (14)
• MS — RSI (14)
• GS — Price crossed above SMA (50)
• GS — ADX (14) above 25