It’s time to take profits on the software stocks.
While the broad stock market has been declining for the past few weeks, the software sector has been slowly, quietly sneaking higher. IGV – the iShares Expanded Tech-Software Fund – is up 13% in just the past five weeks. That’s a dramatic level of outperformance compared to the 2.5% decline in the S&P 500.
We turned bullish on the software sector in mid-February. At the time, software stocks had been crushed. The pundits argued artificial intelligence was destroying their business models. The sector was more oversold than at any other time in the past five years.
So, we suggested brave investors should just buy into the software sector and then go take a six-week nap. When they awoke, they’d be pleasantly surprised.
It has only been five weeks. But, it’s time to wake up and take your profits.
Take a look at this chart of IGV…
IGV has enjoyed a nice rally over the past few weeks. The stock has climbed above both its 9-day exponential moving average (EMA) and its 20-day MA. IGV is now approaching the 50-day moving average line. It’s unlikely to break above that resistance level on the first attempt.
The momentum indicators at the bottom of the chart have moved from “deeply oversold” conditions into neutral territory. And, there’s probably not enough energy remaining to fuel a breakout above the 50-day MA.
It seems more likely IGV is going to enter a consolidation period – where it chops back and forth for a few weeks and builds up energy to fuel a breakout move higher. Or, IGV will pull back from current levels and resume the decline phase that started last November.
Either way, the risk/reward setup now appears unfavorable.
So, if you bought into this “Rip Van Winkle trade” when we wrote about it five weeks ago, then congratulations. You have a nice, short-term gain.
Now though, it’s time to cash out and wait for a better setup.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
P.S. These are the types of setups I scour the markets for each month for my Jeff Clark Trader subscribers. But instead of making just 13% on the stock in five weeks – you could have made 120% on the IGV call options I recommended in just five trading days.
You can see it for yourself in my track record right here.
If you’d like to make these types of trades for yourself, now is a great time to check out Jeff Clark Trader. It’s specially priced at just $49 a year.
I’ll teach you – from the ground up – how to trade options the right way, with low risk, and higher reward than just buying into the stock itself.