The software sector has been one of the most battered corners of the market in recent months, and the iShares Expanded Tech-Software ETF (IGV) tells the story clearly. Even after a sharp rally, the fund remains down roughly 2.6% on the year, a striking underperformance when measured against the broader XLK tech ETF, which has surged by about 57.6% over the same period. The divergence reflects a sector-specific disruption: the rapid advent of AI tools capable of writing basic code has unsettled the traditional software business model in ways that the broader technology space has so far avoided. The gains in tech have been widely dispersed, and software has been left behind.
A Three-Year View of the Damage
A one-year chart is the usual frame of reference, but for IGV the three-year view is far more instructive because it captures the full severity of the drawdown and the levels where buyers finally stepped in. The 73 area has acted as a repeatedly tested high point in earlier years and provided support during the latest sell-off. Just above that, 77 has marked a cluster of notable lows across the past few years. Those zones absorbed significant selling pressure and gave the rally its launching pad.
The move back up, however, still has work to do. The first hurdle to watch is around 87, where an initial recovery high formed, extending up to roughly 89 as a resistance band that needs to be cleared. Above that, the 94 level stands out both as a prior low and as the high point reached after a gap down, making it a natural next target once the lower resistance is broken.
Moving Averages and Trend Confluence
The short- and medium-term moving averages are starting to align in a constructive way. The 5-day and 21-day moving averages converge near the 81 level, which happens to coincide with a previously broken downward-sloping trend line. That confluence is meaningful: the more indicators that line up in the same zone, the more weight that level carries as support on any pullback. To the upside, the 63-day exponential moving average sits near 86, offering another area worth monitoring as the rally advances.
The Relative Strength Index is reinforcing the bullish shift. It has broken above its own downward-sloping trend line and pushed through the 50 midline, making new relative highs. Combined with price closing above rising moving averages, the momentum picture is turning from defensive to constructive.
What the Volume Profile Reveals
The volume profile adds one more piece of evidence. Current price activity near 85 sits above a significant node, but the bulk of trading over the past year has clustered between 80 and 83, with 81 emerging as the point of control. Heavy volume at a price level is typically regarded as a signal of a significant low, and the spikes of trading in this range have been striking — almost unprecedented for such a beleaguered sector. That kind of accumulation pattern suggests the base may be durable, even if overhead resistance still needs to be worked through.
Know What You Own
Before trading any ETF, it is critical to understand its constituents. IGV is led by Oracle, Microsoft, Salesforce, Adobe, and Palantir, among others. Each of these has been under pressure during the so-called SaaS-pocalypse, and each is now rebounding. Because the ETF is concentrated in a relatively small number of names, its behavior will track the fortunes of this handful of large software franchises more than a broader diversified basket would.
A Bullish Options Structure with Duration
Despite this week's rebound of more than 13%, IGV is still roughly 28% below its all-time highs. That suggests the sector is not out of the woods, and volatility in the underlying names is likely to persist. A sensible way to express a bullish view without paying a steep premium is to construct a call vertical spread that gives the position time to work.
One such structure uses the June monthly options, giving about 62 days to expiration. The trade buys the at-the-money 85 strike call and sells the 95 strike call against it, creating a bullish $10-wide call vertical for a debit of roughly $3.70. The break-even sits at 88.70, only about 3.5% above the current share price, meaning no heroic move is required for the position to pay off. If the sector continues to firm, the ETF can comfortably clear that level.
The risk-reward profile is attractive: the maximum loss is capped at the $3.70 debit, while the spread can expand to a full $10 at expiration. The structure benefits from the recent compression in implied volatility — rallies tend to lower IV, making long option premium cheaper — and the short 95 call offsets some of the cost of the long 85 call. Giving the position two months of duration is key, because while the technicals look constructive, the path higher is unlikely to be smooth in a sector that has been so disrupted.
Putting It Together
The software group has been hammered by fears that AI will compress the value of traditional coding businesses, and those fears have left IGV trailing the broader tech complex dramatically. Yet the chart now shows a constellation of bullish signals: heavy accumulation volume at prior lows, a break of the downtrend line, moving averages rolling upward, and momentum indicators confirming the shift. Combined with a defined-risk bullish options structure that does not require a big percentage move to profit, the setup offers a disciplined way to participate in a potential recovery while respecting that the broader volatility in the sector is far from resolved.