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Software sinks to session low

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The broader software sector is under selling pressure as we approach the final hour of trading as the GSTI Software Index (GSO.X) leads sector declines with a 3.9% loss after sector component Veritas Software (NASDAQ:VRTS) $31.07 -15% guided analysts lower after reporting earnings last night.

Yesterday's rally in the GSTI Software Index (GSO.X) came right to the mid-point of our trending lower regression channel and this is perhaps "promising" for bears that are perhaps still holding some puts in SAP Aktiengesell (NYSE:SAP) $34.17 -3.5% just ahead of this company's expected earnings report tomorrow morning before the opening bell.

GSTI Software Index (GSO.X) - Daily Interval

While I don't wish anything bad on a particular stock, I don't mind a little bad news from earnings. As I look at the GSO.X, I begin to wonder what type of "bad news" from a sector component might trigger a test of the recent lows in the GSO.X. All I've been able to come up with in recent weeks is some lowered guidance from SAP Aktiengesell (NYSE:SAP) tomorrow morning.

My scenario for SAP to potentially lower future guidance is brought on by fellow competitors PeopleSoft (NASDAQ:PSFT) and Kronos (NASDAQ:KRON) as they both guided future earnings lower.

Shares of SAP are currently trading right near initial profile for bears to be looking short. Should the company guide lower, it could negatively impact the GSO.X, just as Veritas' (VRTS) lower guidance did today.

While Veritas (VRTS) is a supplier of data availability software, and PSFT, KRON and SAP make software to serve large corporations human resources, the sector has been under pressure in recent months as corporate IT spending on these larger ticket items has been slow.

Jeff Bailey
Senior Market Technician
Option Investor

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