At the beginning of June, I wrote about two sector exchange traded funds (ETFs) that had become significantly overextended. The VanEck Semiconductor ETF (SMH) was trading more than 50% above its 200-day moving average, while the iShares Software ETF (IGV) was over 25% above its 50-day moving average.
Historical data showed that after reaching these extreme levels, sector ETFs tended to experience a short-term pullback before resuming a longer-term uptrend. Specifically, it highlighted the following month's underperformance and outperformance. Since May, however, SMH has chopped around to a 5% gain. IGV has pulled back sharply potentially creating a buying opportunity if history is any indicator.
Plus, with that historical trend in mind, IGV could outperform for the next several months. In this article, I'll look at the stock holdings of the ETF and see if we can find some favorite individual plays based on the data.
The table below lists the top holdings of the IGV software ETF along with some stock performance data. I show month-to-date, year-to-date, and year-over-year returns. The last column in the table shows where the stock is relative to the last year of trading (0% means it's at its low and 100% means it's at its high).
I sorted the list by the stock's performance since the end of May. For those looking for pullbacks, since that's the pattern that has played out in the past, it's the stocks at the top of the table that have pulled back the most recently. If you're looking for a pullback but want to avoid a beaten down stock, AppLovin' (APP) has pulled back sharply, though its 52-week range shows 41%. Several stocks near the bottom of the table have been strong long-term and held up well over the past month when most of the sector had struggled.
Historical data showed that after reaching these extreme levels, sector ETFs tended to experience a short-term pullback before resuming a longer-term uptrend. Specifically, it highlighted the following month's underperformance and outperformance. Since May, however, SMH has chopped around to a 5% gain. IGV has pulled back sharply potentially creating a buying opportunity if history is any indicator.
Plus, with that historical trend in mind, IGV could outperform for the next several months. In this article, I'll look at the stock holdings of the ETF and see if we can find some favorite individual plays based on the data.
The table below lists the top holdings of the IGV software ETF along with some stock performance data. I show month-to-date, year-to-date, and year-over-year returns. The last column in the table shows where the stock is relative to the last year of trading (0% means it's at its low and 100% means it's at its high).
I sorted the list by the stock's performance since the end of May. For those looking for pullbacks, since that's the pattern that has played out in the past, it's the stocks at the top of the table that have pulled back the most recently. If you're looking for a pullback but want to avoid a beaten down stock, AppLovin' (APP) has pulled back sharply, though its 52-week range shows 41%. Several stocks near the bottom of the table have been strong long-term and held up well over the past month when most of the sector had struggled.
3 months ago
