Software stocks are showing renewed strength, potentially leading a rotation within the tech sector away from semiconductors. Analyst Katie Stockton points to positive technical indicators for the iShares Expanded Tech-Software Sector ETF (IGV), suggesting a new phase of leadership.
With long-term oversold conditions and improving intermediate-term momentum, IGV is positioned for gains, supported by relative strength against the S&P 500 and bullish chart patterns.
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Software stocks are emerging as the latest sector to benefit from a rotation within technology, with renewed strength in major players like Oracle (ORCL) and Microsoft (MSFT) indicating a broadening of leadership beyond semiconductors.
According to Katie Stockton, an analyst at Fairlead Strategies, this shift presents a new avenue for positive technical catalysts, both in absolute and relative terms. The iShares Expanded Tech-Software Sector ETF (IGV) is poised to build on its recent gains.
After a significant six-month correction, IGV shows signs of long-term oversold conditions on its monthly stochastics, within the context of a secular bull market. This is further supported by the monthly cloud model, with an upturn in stochastics anticipated by the end of May, suggesting a potential long-term bottoming process.
Intermediate-term momentum for IGV has also improved, marked by a new weekly MACD 'buy' signal, which bodes well for continued upside in the second quarter. Resistance is expected around the weekly cloud model, near $97.
Furthermore, IGV demonstrates positive intermediate-term momentum relative to the S&P 500 Index (SPX). Dual counter-trend signals from the DeMARK Indicators® suggest that IGV's trend of underperformance against the SPX is likely overextended. IGV has already reacted positively to these signals, indicating potential for several more weeks of outperformance.
The daily chart for IGV is forming a bullish inverse head-and-shoulders reversal pattern. Short-term momentum is also showing expansion, as evidenced by the MACD histogram and a gap higher on Friday from the 50-day moving average near $83, which now acts as short-term support.
The combined bullish signals and relative strength against the SPX suggest that software stocks are establishing themselves as a new leadership group within the technology sector.
