Software Strikes Back
Revenge of the SaaS
In Star Wars, the Empire built the Death Star. Massive, expensive, technologically overwhelming.
And whilst I’m not sure anyone residing in a galaxy far, far away traded the move - 3x leveraged lightsaber ETFs, anyone? - it’s fun to predict where money would’ve flowed had Obi Wan been granted access to a Robinhood account.
Thankfully here on earth, we don’t need to speculate how the creation of our own ‘Death Star’ looks - we’ve lived it for the best part of four years.
During this time, markets have obsessed over AI infrastructure: chips, data centers, nuclear power, cooling, hyperscale capex. The equivalent of watching the Empire assemble giant space stations across the galaxy - but with more dollars and fewer Storm Troopers.
Meanwhile, software drifted into the background. Slower growth. Multiple compression. The death of SaaS as we know it!
But lately, that narrative has started to shift. And if recent price action is any indication, the opening titles of the Software Strikes Back might be about to begin.
Dun dun dun du-duuun dun du-duuun…
DA DA DA DAAAAA… da-da da da daaaaa…
A Notable Divergence
Software vs Semis. You know the story by now: two key constituents within tech trading like the Jedi and the Sith - one good, one down right awful - so much so that as recently as this week, software broke to new all time lows relative to semis.
Sounds pretty good if you’re long semis and short software, right?
Not for me. I’m seeing this move differently to most.
Sure, picks and shovels have definitely been the trade for the last six weeks, but given the extreme levels we’re now seeing on the RSI - as well as the clear divergence that’s now in play on the daily and weekly timeframe - I’m willing to allocate some capital into software in anticipation of favorable rotation.
Return of the Bid: Bottom Fishing Software Stocks
As any Storm Trooper could tell you, charging blindly into battle usually ends badly.
That’s the danger with bottom fishing software stocks. After months of underperformance, crushed sentiment and “SaaS is dead” narratives, it’s tempting to start swinging at every oversold chart that flashes green for a day.
But that’s not how to play this thesis - not in my book anyway.
Instead, I prefer to enter trades with a tight, pre-defined escape route. And in this particular context, anchored VWAPs are my go-to weapon of choice.
So long as price is holding the AVWAP from the prior low - I’m happy being in the trade. As is the case here with INTU. I’ve also added two bars: green for support, red for resistance, to help identify other potential areas of supply/demand when entering the trade.
Down here, we’re right on the AVWAP from the prior lows, hovering just above support. That’s limited downside risk, and solid upside potential. Risk. Reward.
Another way to play these potential bases is to stick a Fibonacci Retracement from the prior low to the former swing high. When price retraces into the golden pocket - as shown on CRM above - wait to see if buyers show up and take it from there.
Honestly, so many tickers look like the examples shown here from VEEV to PLTR - but that’s not to say every software stock is built equally, far from it.
Already we’re starting to see names within the cybersecurity space lead to the upside - take note of PANW below:
Here you can see the exact setup I’m looking for on other software names right now - price retracing down into the golden pocket with the reclaiming of the prior low’s AVWAP providing the signal to add a long position. Take out the prior highs and up she goes. Lovely stuff.
One that’s setting up right now…PLTR
What I need to see here is price recapturing $140 and progressing towards the upper resistance line - see the purple, diagonal line on the chart. A breakout above $150 confirms the move and likely drags the wider software space higher with it.
If Software’s Going, Crypto Ain’t Messing About
Once the X-Wings launch, subtlety tends to disappear pretty quickly.
That’s crypto whenever software starts catching a bid. No shit, they’re correlated.
Which begs the question - if software gets going here, which crypto-adjacent assets do I want to be adding to my watchlist?
First up, HOOD…
If in doubt, zoom out.
What we have here is a stock trading at a really interesting level - the prior highs from February 2025 - which right now, is offering valid support above $65 a share.
Zoom in and things look even more interesting. Golden pocket, check. Earnings AVWAP, check. Prior low AVWAP…pending.
Should price get above $78 over the coming days and weeks, then I’ll likely add more to my existing position. And if it doesn’t? No sweat. I’ve got the AVWAP from the earnings gap as a potential stop, with the 78.6 fib below that. Risk. Reward.
And how’s about COIN…
Just look at the cluster of AVWAPs bunched together down here!
And the golden pocket too? Come on, too good!
Sure, she’s a spicy (and expensive) high beta beast - but the risk/reward is there for those willing to take a shot…
Revenge of the SaaS?
Not every rebellion succeeds. And that’s the key point here.
Just because key support levels are holding doesn’t make any of the stocks detailed in this post a sure thing, far from it. Markets don’t hand out guaranteed wins simply because a chart looks tidy and an AVWAP lines up with a fib level.
But where there’s a tight stop, there’s a favorable opportunity.
That’s the whole game. Defining risk before the trade even begins.
If support fails, I’m out quickly with manageable damage. If it holds and momentum returns, the upside can massively outweigh the downside.
Trail those stops and let’um ride, young Jedi.
Best,
Alex