The iShares Expanded Tech-Software ETF jumped about 11% in two trading days, snapping a deep slump for software stocks. The surge came as the S&P 500 returned to record highs, after IGV had slid more than 21% so far in 2026. Technical strategists say short covering and regained support in the mid-$70s suggest selling pressure may be easing, but traders are watching key moving averages and momentum indicators to see if the bounce holds.

A sudden rebound after heavy selling

Software had lagged the broader tech rally for months. The sector fell sharply after investors worried that artificial intelligence would take market share from traditional software firms. IGV, which tracks a broad group of software companies, plunged as much as about 37% from its September peak before this week's snapback, according to Bank of America technical analysis cited to clients.

That drop left prices at levels some traders called attractive. Last week a key support area near $76 had briefly broken. The break looked like a genuine breakdown. Sellers quickly lost control after that. IGV reclaimed $76 and then extended gains. Market technicians call that a failed breakdown or a bear trap. When that happens, short sellers can be forced to cover, pushing prices higher in a short time.

Where technicians see the floor

Paul Ciana, a technical strategist at Bank of America, told clients the recent price action could mark the end of a fifth downward wave for the software ETF and that familiar support in the mid-$70s held. He noted the ETF was attempting to regain its 200-week simple moving average at $81.78. Ciana flagged the potential for a head-and-shoulders base to form, which in his view could lead to a three-wave rally over the summer.

Ciana also pointed to individual charts. He said Microsoft appears to be in an "oversold recovery" and listed levels to watch at $413, $431 and $454. Oracle, after peaking near $343 in 2025, fell roughly 60% to a low around $135, and Ciana said that selloff may have completed a multi-wave decline into long-term support in the $130s. He said Palantir could be forming a double bottom around $120, while Salesforce had found support near $160 and showed a bullish divergence on its relative strength index. Palo Alto Networks had recently found footing around $140, Ciana wrote, and momentum measures were improving.

Valuation talk and AI fears

Part of the pullback in software came from a fear that AI would displace the need for traditional enterprise software. Some investors assumed AI would replace whole products or slash spending on existing subscriptions. Morningstar analyst Dan Romanoff pushed back on that framing.

He told clients software firms are the most undervalued they've been in three years and face high uncertainty, but that enterprise software still has durable revenue streams tied to business operations.

Mastheads

Romanoff highlighted companies he sees as good values now. He named Microsoft and Salesforce among names that could benefit from AI adoption rather than be displaced by it. Microsoft in particular has been integrating large language models into its services and has sizable investments in AI partnerships. Romanoff's point was that adoption of AI can add to the value proposition of existing enterprise suites rather than erase them.

Which big names matter most

Traders say a few large-cap names drive a lot of the software narrative. Microsoft, Oracle, Salesforce, Palantir and Palo Alto Networks were all cited as leaders inside the ETF and were among the stocks leading the recent two-day surge. Microsoft’s market position in cloud and productivity software makes it an obvious focus. Oracle’s sharp fall from its 2025 high left it sitting on long-term support, in the view of the technical strategist. Salesforce was the weakest performer among the group year to date, but analysts noted signs of support and improving momentum.

Barclays’ trading desk told clients that sentiment on software remained cautious, yet they had seen a more favorable shift in the past few days around higher-quality, large-cap enterprise names, with particular investor interest in Microsoft. That aligns with buying flows observed during the rebound, which were concentrated in the names with the largest weight in IGV.

The return of software would broaden the tech-led advance that has already been powered by semiconductors and large-cap tech. Semiconductors, via the iShares Semiconductor ETF, and large-cap tech, via sector ETFs, have been on multi-day runs. Software joining that move makes the rally less concentrated.

Yahoo Finance noted that the Nasdaq indexes had been leading without much help from software. With IGV now snapping back, the rally looks more durable at a market-structure level because more parts of the tech complex are moving together. That matters for investors who worry about narrow leadership fuels turning fragile when a few names pause.

Technicians will watch whether IGV can hold above the 200-week moving average and remain north of the $76 support that recently held. Momentum indicators such as the relative strength index and moving average convergence divergence are improving on several names, which technicians cited as early constructive signs.

For fundamental investors, valuation is the other lens. Morningstar’s view that software is unusually cheap in a three-year view gives a valuation argument to complement the technical one. That combination has prompted some buy interest in large enterprise names. But both camps are watching earnings and AI adoption metrics closely to see if revenue growth and margin trends confirm the chart signals.

Analysts and strategists still note risks. The sector’s year-to-date decline left IGV down over 21% in 2026, so any new negative news on AI competition or slowing enterprise spending could reverse gains. A failure to hold key support levels would likely trigger fresh selling from traders who entered on the recent spike. Earnings that miss expectations or guidance that implies slower AI monetization could also sap momentum.

At the same time, stronger-than-expected demand for AI-enabled services would reinforce the bullish case both for revenue and for investor appetite. That split is why technicians and some buy-side desks are watching price action and fundamentals in parallel.

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Technicians will watch whether IGV can hold above its 200-week moving average, near $81.78, and stay above mid-$70s support; a failure to hold those levels would likely trigger fresh selling after the sharp rebound.

This article was created with AI assistance.