The iShares Expanded Tech-Software Sector ETF (IGV) is getting a lot of attention, and rightly so. Since May 2024, the ETF has significantly outperformed the larger SPDR Technology Trust ETF (XLK): +23% versus +10%. Things recently accelerated in November, and on Tuesday the IGV Software ETF was one of only three ETFs we track to hit new all-time highs. In total, IGV has 118 components, but many of them are small. In fact, 80 companies have an index weighting of less than 0.5% (source: koyfin). So the real leaders of the past three months were these eight. Again, some of the very small names have also posted strong gains, but these are the stocks that moved the price and literally pulled IGV to never-before-seen price levels. But there’s a big one missing. Microsoft (MSFT) is the third largest holding in both the S&P 500 and the NASDAQ 100 and by far the largest software stock in both indices. Within the IGV Software ETF, it also has the third largest weighting, but it ranks behind both CRM and ORCL. More importantly, MSFT noticeably underperformed the IGV ETF across several time frames. For example, over the past three months, the MSFT was +3%. Breaking down the Microsoft charts, MSFT last made a new high on July 5, when it hit $468 and immediately rolled over. Since then, it has traded in a volatile range. The good news is that dips have been bought, but rallies have been sold, creating a messy short-term picture. Three of the major moving averages (20, 50, and 200-DMAs) trade within one point of each other. That rarely happens and is indicative of the kind of directionless trend that MSFT has been experiencing over the past three-plus months. Needless to say, the daily chart is not bullish, at least not yet. Zooming out to the weekly offers a different and more encouraging viewpoint. Indeed, MSFT remains within a large symmetrical triangle pattern and thus has more work to do before attempting to break out. The constructive part is that we have seen MSFT sustain similar multi-week trading ranges in recent years before finally breaking out. This happened near major lows (early 2023) and also near record highs (2020, 2021 and twice earlier in 2024). While each time is different, consolidation phases that occur in long-term uptrends tend to resolve higher. Last, and certainly not least, the recent weakness in MSFT, combined with strong progress in IGV, has caused the relative MSFT/IGV line to fall quite sharply. Here is the weekly chart. In fact, it has now delivered just the third weekly relative oversold MSFT/IGV reading in the past decade. The potential good news is that: 1. the ratio line is in a long-term upward trend and 2. the last two oversold conditions have occurred near major relative trading lows. In other words, if history is any guide, the MSFT’s relative weakness versus its peer group could set it up to change course once again. If that happens, the stock will become a big part of IGV’s potential next leg. Not only has the ETF reached new all-time highs, but it also broke a multi-year bullish pattern. DISCLOSURE: (None) All opinions expressed by CNBC Pro contributors are solely their own and do not reflect the views of CNBC, NBC UNIVERSAL, their parent company or subsidiaries, and may have previously been disseminated by them on television, radio, the Internet or any other medium . THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO PURCHASE ANY SECURITIES OR OTHER FINANCIAL ASSETS. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT THE UNIQUE PERSONAL CIRCUMSTANCES OF ANY INDIVIDUAL. THE ABOVE CONTENT MAY NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
A big-cap tech is surprisingly lagging behind the breakout software stocks. That might change
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