Software Stocks Just Triggered 2 Ultra-Rare Bullish Signals
AI has annihilated software companies.
Forced selling has sent many names to multi-year lows.
This is great news for value hunters.
Software stocks just triggered 2 ultra-rare bullish signals.
While markets sit near all-time highs, massive rotations have created wide dispersion…especially in technology stocks.
Semiconductors levered to memory and storage have zoomed.
Software companies have been doomed.
As AI continues to make productivity advancements, investors have discounted the group substantially.
In fact, we are witnessing some of the largest outflows in the sector…ever.
History and evidence suggest that now is a great time to buy the beaten down group. Just make sure you bet on top-tier names.
Today, we’ll dive into new analytics, highlighting just how severe this selloff is.
More importantly, we’ll arm you with 2 signal studies that forecast an oversold bounce is around the corner.
Software Stocks Just Triggered 2 Ultra-Rare Bullish Signals
The S&P 500 is less than 1% from highs.
This masks the fact that the index has been rangebound for months.
A monster rotation out of Technology stocks has helped cyclical groups shine.
Since November, energy and materials stocks have jumped 25.6% and 24.1% respectively.
Meanwhile, popular technology stocks have suffered, falling 6.4%:
Much of the weakness in the growthy tech space is due to software stocks.
To give you an idea of the magnitude of the software selloff, the iShares Expanded Tech-Software Sector ETF (IGV) has plunged 28% over the same time span.
This fund holds a basket of the largest tech stocks on the planet including Microsoft (MSFT) and Palantir (PLTR). (Disclosure I hold a long position in MSFT)
Programmatic forced selling has hit the group extremely hard.
This brings us to our first signal study.
The widely followed Relative Strength Index (RSI), which measures technical momentum, fell to 14.16 on February 5th. This is the lowest reading going back decades:
Normally, you don’t want to catch a falling knife. However, forced-selling events present a rare oversold signal.
I went back and found that the IGV ETF has measured an RSI of 17 or lower just 6 times in history, including the Tech rout in 2001, and 2006.
Here’s what happened next:
- 1-week later software stocks fell 1.8% on average
- 1-month later software names jumped 12.1%
- 3-months later IGV ramped 35.2%
- 6-months later the ETF soared 31.2%
Now, should you expect these types of gains in 2026? No…but the evidence points to better days ahead…and I personally agree.
Top-tier software stocks will thrive again.
But let’s do one more study to help build our bullish case.
For our 2nd signal study, we’ll look at one of the major rotational themes in our MoneyFlows data.
Last week I highlighted how tech stocks are being dumped while small-caps and cyclicals are under healthy accumulation.
2026 has seen extreme risk-on in Energy stocks and extreme risk-off in Technology stocks.
To illustrate this, here are our daily flows in the Energy sector. It’s been non-stop green:
On the flip side, tech has recorded wicked outflows:
This is extremely rare rotational action. In fact, since 2013 there’ve been just 4 similar periods mimicking 2026.
Prior periods include COVID-19 and the high inflationary period of 2022. Here’s a beautiful snapshot of the rarity of this rotation:
The million-dollar question is what comes next?
When we plot the forward returns for the State Street Energy Select Sector ETF (XLE) and the State Street Technology Select Sector ETF (XLK) post these rotations it becomes clear.
Tech stocks soar with:
- XLK gaining 4.8% on average 3-months later
- XLK soaring 16% on average 6-months later
- XLK ripping 28.1% on average 12-months later
These 2 signal studies suggest that software stocks are on sale…and represent a huge opportunity.
Just make sure you bet on the best names loved by institutional investors.
Bet on the outliers.
That’s where our process shines year after year.
Get started today.
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Lastly, Jason Bodner and I discussed this rotation in detail. And we showcase 3 oversold software stocks to consider right now.