Inflation cools and trading revenues boom — ride the bank earnings momentum
Thesis
Cooling inflation completely changes the backdrop for bank stocks, which had been weighed down by fears of aggressive Federal Reserve rate hikes that could choke off the economy. With those hike bets fading fast, the macroeconomic risk hanging over the financial sector is vanishing. Layered on top of this favorable shift is Goldman Sachs blowing past its profit targets thanks to a record-breaking surge in trading activity. This creates a powerful combination for a trade: a massive fundamental earnings catalyst reinforced by a suddenly supportive interest rate environment.
Strategy approach
Build a swing trading strategy that enters long GS and JPM on the H4 or D1 timeframe following the release of lower-than-expected US CPI data. Entry should be triggered if the stock is trading within 1% of the session high post-CPI release. Include a 5-day max hold parameter and a 3% trailing stop loss.