Welcome back to MktContext where we study the US economy and time the stock market.
Current stock market timer: BULLISH
This week brought strong earnings results from software leaders like Salesforce (CRM) and CrowdStrike (CRWD). The sector soared to new highs, one of the few recent bright spots in tech.
If we rewind the clock, chip stocks had been outperforming software stocks since the April 2025 âLiberation Dayâ lows. As the AI revolution grew, there were fears it would displace software programming (a.k.a. SaaS-pocalypse). Over a one-year period, chip stocks outperformed software by a whopping 260%:
But market narratives have a way of getting over-extrapolated. The outperformance peaked this past June, around the same time we noticed chip stocks were crashing and we Sold Marvell. As shown above, the market retraced more than half of that move as chips fell and software rose.
Recent earnings proved the âSaaS-pocalypseâ fears were overblown. Revenues are growing and margins are expanding. Software companies are implementing AI (the very tech thought to obviate them) and gaining traction doing so.
So now we have come full circle. Software leaders like Microsoft, Palantir, CrowdStrike, and Palo Alto Networks have rallied sharply off their lows and now appear overbought. The retracement against chips looks overdone and could consolidate from here.
Expect software outperformance to become selective rather than broad-based, as only specific stocks break out from long consolidations. Below are three software stock picks breaking out from long consolidations and deeply oversold levels. These setups offer potential short-term trade opportunitiesâŠ
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Nvidia earnings
Jackson Hole and monetary stimulus
Technical analysis, positioning, and our portfolio
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