Big banks return cash as Big Tech gets punished for spending — rotate into JPMor
Thesis
JPMorgan and Goldman Sachs just passed their stress tests with flying colors and immediately announced massive buybacks and dividend hikes, putting a hard floor under their valuations. Meanwhile, investors are aggressively punishing Microsoft for its heavy spending, suggesting the market is losing patience with Big Tech's high costs. Add in the fact that small caps are having their best run in decades, and the writing is on the wall: Wall Street is rotating money away from expensive tech and into reliable, shareholder-friendly financial firms.
Strategy approach
Build a mean-reversion / pair-trade strategy on D1 timeframe. Enter long XLF (Financials ETF) and short XLK (Tech ETF) when the 20-day simple moving average of the XLF/XLK ratio hits a 6-month low and XLF is making new 20-day highs. Exit when the ratio crosses above its 50-day simple moving average. Use a 7% trailing stop on the XLF long position.