By Doug Busch

Software stocks may be hitting turbulence at altitude, with the iShares Expanded Tech Software-Sector exchange-traded fund $(IGV)$ showing signs of fatigue. Last week, the ETF slid 3.6%, its worst weekly decline in four months, recording a bearish engulfing candle. Over the past month, it's slipped 1%, despite a surge of high-profile M&A headlines. But dealmaking isn't always a bullish tailwind, it can suggest a sector entering a late-stage phase of its cycle.

Names like Palo Alto Networks scooping up CyberArk, Salesforce absorbing Informatica, and Couchbase getting taken private haven't moved the needle much.

As the chart below illustrates, iShares Expanded Tech Software-Sector ETF, which was up 0.8% at $111.38 on Wednesday, has outperformed the VanEck Semiconductor ETF $(SMH)$ since last year's election, but that spread may be due for a reset. With leadership names like CrowdStrike, Oracle, and Microsoft looking technically stretched, a dose of mean reversion could be on deck.

CrowdStrike, long considered a best-in-class cybersecurity play, has been acting out of character, sliding 13% over the past month while the broader software group remains largely flat. Technically, the stock finds itself at a pivotal crossroads near the $450 level, the site of a former bull flag breakout. A decisive close above that mark by week's end could reignite momentum.

However, if CrowdStrike, which was trading up 1.8% at $449.73 on Wednesday, fails to hold $450, it could open the door to a retreat toward the $400 area, a level that aligns with past inflections at $200 and $300 last August and April, reinforcing the influence of round number theory. Friday also brings the possibility of a five-week losing streak, something CrowdStrike has only experienced once in the past five years. Could news of Alphabet selling all of its CrowdStrike stock be weighing on it?

Oracle is having a blockbuster 2025, soaring more than 50% YTD, a rally that vaulted Chairman Larry Ellison into the No. 2 spot on the world's richest list. But is this surge getting ahead of itself? The weekly chart for the period ending July 25 flashed a cautionary signal in the form of a rare doji candle at all-time highs, a pattern that resembles a plus sign and often hints at indecision or trend exhaustion.

Technically, Oracle, which was down 0.4% at $254.70 on Wednesday, has done little wrong. It cleared the $200 level the week of June 13 which advanced a powerful 24%, also breaking above a well-defined double bottom base. But no rally is linear, and after such a parabolic move, a pause wouldn't be surprising. Look for a potential pullback toward $225 by the end of August, which could offer a healthier setup for the next leg higher.

Microsoft, which recently flirted with a $4 trillion market cap, continues to thrive in 2025, up 25% year to date. It's also traded higher in 14 of the last 15 weeks. But after its latest earnings report on July 31, the stock flashed a potential warning sign. While shares initially surged 4%, they closed more than $20 off intraday highs, hinting at buyer fatigue.

Technicians will note the emergence of a rare long red-filled candle, often signaling a shift in momentum. A similar setup appeared on Dec. 28, 2024, and preceded a multi-month drawdown that didn't end until April (notice the doji just a couple of days before too). With that context, keep an eye on the gap fill near $515 from the July 30 session, and don't rule out a test of the round $500 level by month's end.

Microsoft was trading at $525.51 Wednesday.

The takeaway: Software stocks may need a reboot.

Write to Doug Busch at douglas.busch@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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August 06, 2025 15:21 ET (19:21 GMT)

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