Generals In Retreat?

The leading software group has been a consistent beacon of light within technology, but that grip of strength appears to be weakening. Of course this is not a good development, and perhaps we should be listening intently to what they are trying to say. The semiconductors have not been quick to pick up any slack, although they may get a boost after a nice reaction from NVDA Friday. But peaking at performances of some former solid software names and these could be a warning of things to come. Stocks like PTC NEWR PS NTNX TWOU and DBX are all lower by at least 41% from most recent 52 week highs. Even respected names like ADSK and ZEN are in bear market mode off at least 20% from recent peaks. Could we be on the verge of adding SPLK to that list? It REPORTS earnings next Wednesday after the close.

Waning Influence:

For all the chatter of the rolling bull market, when it comes specifically to technology there has been none. Software was the group that basically has been going wire to wire, with some help along the way from the semiconductors, services and internet. But software never passed the baton to one of those aforementioned subsectors, and that may be precisely the reason it looks fatigued presently. Below is the chart of software compared to the Nasdaq, and its importance is lessening. If semiconductors can not step up to the plate and assume leadership this uptrend which already looks somewhat fragile may become more so. Software is not dead yet as names like SHOP AYX MANH PRO and PLAN deserve respect but TTD and ZS are teetering on the brink. Tread carefully.

Examples:

Some “old tech” names have been under the weather lately. CSCO for one cratered 8.6% Thursday after a poorly received earnings report, and now sits in bear market mode down 21% from most recent 52 week highs. VMW is now 31% off its most recent yearly peak. Below is the chart of a name performing a bit better, of ORCL¬†and how it appeared in our 8/9 Technology Note. It is now below our 54 suggested entry, but is holding tentatively above a 52 stop. Yesterday it recorded a bullish harami off its 200 day SMA, and has now filled in its recent earnings gap from 6/19. Good risk/reward still exits in my opinion.

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