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Software leads tech lower

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Software stocks are leading technology stocks lower today as depicted by the GSTI Software Index (GSO.X) 129.49 -3.81%. Weakness in the group was fueled by PeopleSoft's (NASDAQ:PSFT) $21.36 -9.9% comments that business conditions remain difficult.

GSTI Software Index Chart - Daily Interval

The software sector has been one of the weaker technology sectors and we've labeled it as one of the groups that is at the "tail of the snake." It has been one of our analogy's that the markets move like a snake. For a strong broader market environment, bulls need to monitor all parts of the broader market and identify and "label" various sector as to their technical strength and weakness. Technicians can simply use some of the simple moving averages like the 50-day and 200-day moving averages to get a feel for "where" a stock or sector is trading relative to these widely followed moving averages.

For a strong market advance, bulls want to see even "weak" groups show some strength and if a weaker group like the software sector were able to "anchor" itself or firm up, then the leading or stronger sector at/near the "head of the snake" will most likely move higher.

Should the GSO.X close much below its mid-point of regression, the group then becomes vulnerable to either trending back lower to the bottom end of downward regression or at least retesting the lows near 116.

Here's a partial list of the GSO.X components, sorted by volume.

GSTI Software Index Components (partial) - Sorted by volume

The weakness in the software sector also impacts the NASDAQ-100 Trust (QQQ) $32.12 -2.45% as many of the stocks that comprise the GSO.X also have weighting in the QQQ. As mentioned before, Microsoft (NASDA:MSFT) $54.30 -3.07% carries the largest weighting in the QQQ and a "key stock" for QQQ traders to monitor for strength/weakness.

Jeff Bailey
Senior Market Technician
Option Investor

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