Tech is tanking but big banks just passed their stress tests with flying colors
Thesis
The S&P 500 and Nasdaq have fallen for three straight days as investors dump expensive tech stocks, creating a need for capital to rotate into safer, fundamentally sound sectors. In a stroke of good timing, the Fed's annual stress test showed all 32 large banks can weather a severe recession, prompting JPMorgan to announce a massive $50 billion buyback and Goldman Sachs to raise their dividend. Wall Street analysts are also pointing out that small-cap stocks, which are heavily weighted toward financials and domestic growth, are having their best first half of the year since 1991. Combining the tech weakness with the green light from the Fed creates a compelling argument to rotate out of volatile tech and into fortress bank stocks that are actively returning cash to shareholders.
Strategy approach
Build a rotation strategy that enters long JPM and GS on the D1 timeframe when the Nasdaq (QQQ) has fallen for 3 consecutive days, signaling tech weakness, and a major fundamental catalyst for financials (like a successful Fed stress test and announced buyback) has just occurred. Exit if the stock makes a 20-day high or after a 30-day hold.