Following a trillion-dollar sell-off in U.S. software stocks, Goldman Sachs' trading division has observed signals indicating a potential market bottom. The bank's trading desk noted that after eight consecutive days of sharp declines, positions in a software ETF have been substantially cleared out, and institutional investors have begun attempting to buy the dip, suggesting this historic correction may be nearing its end. Software stocks plunged 15% over the past week and are down 29% from their peak last September. The iShares Expanded Tech-Software Sector ETF (IGV), a key market barometer, set volume records for two consecutive days, a first in its 25-year history, with over 85 million shares traded since Tuesday. Activity at Goldman's trading desk reached an 8 out of 10, while institutional clients were net sellers of $2 billion. Despite the ongoing selling, Goldman's trading division identified key reversal signals. The number of shares available to trade for IGV has fallen to a near five-year low, indicating that selling pressure has largely been exhausted. More importantly, the bank's derivatives desk observed clients beginning to unwind index hedge positions, which often precedes a market bottom. Institutional investors started buying IGV on Wednesday and Thursday. The fund's available shares surged 12% on Wednesday alone, the largest single-day increase since 2023. This optimistic assessment from the trading front contrasts sharply with the pessimistic outlook from Goldman's strategy team, highlighting a significant divergence in market views on the software sector's prospects.

**Trading Desk Observations: Signs of Selling Exhaustion** Goldman's ETF trading desk is closely monitoring unusual trading activity in the IShares Expanded Tech-Software Sector ETF (IGV). This ETF became the primary tool for clients seeking exposure to software stocks this week, with ETF trading accounting for 37% of total volume. As of 11 a.m. Eastern Time, over 11 million shares had already traded for the day. More critically, the change in available shares saw IGV's figure hit a near five-year low earlier this week, indicating that previous long positions have been significantly reduced. Data from Goldman's research department shows that large mutual funds had already reduced their allocations to software stocks to underweight levels as early as the middle of last year. Goldman's derivatives desk detected a subtle shift in market sentiment. The bank's U.S. Fear Index rose to 8.3, placing it in the 89th percentile based on a three-year lookback period. However, the desk observed clients starting to sell put options to realize gains, betting that the current sell-off might be ending. Following the S&P 500's break below its 100-day moving average, clients are readjusting their portfolios, as "market expectations for a sharp rebound in stock indices to record highs have cooled."

**Institutional Funds Begin Testing the Bottom** After multiple days of institutional selling, Goldman's trading desk finally observed institutional buyers entering IGV on Wednesday and Thursday. The fund's available shares jumped 12% on Wednesday, the largest single-day increase since 2023, which Goldman interprets as "feeling like direct buyers attempting to find a bottom, along with potential short covering." Data from Morgan Stanley showed that as of 1 p.m. Eastern Time, retail investors were net buyers of $1.7 billion, ranking in the 50th percentile for that time of day and approximately $115 million above average. This included $1.3 billion in ETF purchases and $435 million in individual stock buys, indicating that dip-buying capital is starting to return. However, systematic selling pressure has not completely abated. Morgan Stanley estimates that a 1.5% drop in the S&P 500 at the close would trigger $30 billion in equity selling, which would expand to $45 billion if the decline widened to 2%. Due to thin market liquidity, Goldman's derivatives desk pointed out that "market internals have been extremely volatile this week," meaning even modest buying could potentially trigger a sharp rebound.

**Strategy Team's Pessimistic Tone** In contrast to the technical bottoming signals observed by the trading desk, Goldman's strategy department remains cautious about the software industry's long-term outlook. Analysts led by Ben Snider, in a recent report, compared the current software sector to the newspaper industry disrupted by the internet in the early 2000s and the tobacco industry hit by heavy regulation in the late 1990s. Goldman believes the current valuation decline reflects not short-term earnings volatility, but fundamental market doubts about the software industry's ability to sustain long-term growth and profit margins. This comparison of software stocks to the "newspaper industry" underscores that Wall Street's concerns about AI disrupting traditional software business models have reached an extreme stage. This divergence reflects a core market contradiction: oversold signals from a trading perspective versus structural concerns from a fundamental perspective. For investors, short-term technical rebound opportunities and long-term industry uncertainties need to be assessed separately.