When we hear the term market rotation, we typically think of money moving between sectors — mostly from growth to non-growth. This has been happening over the past several weeks and has been a key reason the S & P 500 has remained near its highs. However, rotation also occurs within sectors, and when that happens in a heavyweight group like technology, it deserves attention. This has been a prominent theme for several months, particularly between two areas moving in opposite directions. Just Thursday morning, the VanEck Semiconductor ETF (SMH) made another new all-time high, while the IGV software ETF fell to its lowest level since late April 2025 on Wednesday, bucking the broad market’s recovery. One is breaking out; the other is breaking down. The divergence is most prominent in the most important groups, which we’ll break down in detail:. Semiconductors look like 2020-2021 First, let’s start with SMH, which has been a leader from the very beginning of the turnaround last April. It is currently up over 140% from that low, which has occurred over just nine months. Incredible … but not unprecedented. SMH’s advance is very similar to what we saw off the 2020 Covid lows, which ultimately extended well into late 2021, when SMH was up more than 230% trough to peak. The advance first hit 140% in January 2021 … nine months into the move. So far, the pace of the latest rally has been exactly the same. Again, incredible. Semiconductors: Late pattern breakout SMH has done an excellent job not only rallying, but repeatedly leveraging bullish patterns, and that trend has continued into 2026. As 2025 ended and 2026 began, SMH broke out from a cup-and-handle formation, and it remains firmly in breakout mode with an upside target near 435. While that level is not far away now, it represents just one of several large bullish patterns the ETF has successfully leveraged along the way. One key difference this time is that the move has not been driven solely by Nvidia (NVDA) . Instead, a broader group of semiconductor stocks has been carrying the weight, helping keep SMH in a well-defined uptrend. Given that semiconductors are a disproportionately large piece of technology, and technology itself is the largest sector in the S & P 500, this persistent strength has been a major reason the broad-market index has been able to maintain its footing near the recent highs. Software: Bearish pattern remains The same has certainly has not been the case with software stocks. The iShares Expanded Tech-Software Sector ETF (IGV) fell again on Wednesday, continuing to drop after breaking below a very clear topping pattern last week. We’ve seen this before, too. The IGV ETF broke below a double top formation in early 2025 and subsequently collapsed during the Tariff Tantrum in April. The current bearish head-and-shoulders pattern is larger, longer in duration and has a downward-sloping neckline, making it one of the most aggressive bearish setups currently in play. More positively, IGV is now oversold again, marking the fourth such instance since last March. Two of the last three times, this condition led to clear bounces — April and November 2025 — with the former producing significantly more upside. From this angle, another rally attempt wouldn’t be a surprise. For any move to be meaningful, IGV would need to reclaim its breakdown zone near the 101 level. The key question is how much worse can it get with areas like semiconductors pushing to new all-time highs. IGV vs. SMH: Most oversold ever So, which ETF gives us a better risk-reward at this stage? The leading SMH ETF, which continues to stay above its breakout zone and make new highs? Or IGV, which continues to sit below its breakdown zone and make lower lows? Note — this isn’t about which chart looks better. The question is, which could gain the most from here? That brings us to the IGV versus SMH relative chart. And if the IGV absolute chart looked bad, the IGV/SMH ratio looks like an outright crash. In fact, the 14-week RSI of the relative ratio just hit 15, the lowest reading ever, following Wednesday’s move. (IGV began trading in 2001.) IGV vs. SMH: Odds of a relative bounce The underperformance could certainly continue over the longer term, but likely not at this pace. Why? One possibility is that SMH eventually stalls while IGV’s decline simply slows, which would help stabilize — and potentially turn — the relative-strength trend. Whatever the scenario, one thing is clear: We do not expect IGV and SMH to continue moving in opposite directions for much longer. Potential mean-reverting relative move Here’s a close-up view of the relative chart going back to 2020. IGV has underperformed for most of that period, but there have been four prior instances when software posted several months of relative strength versus SMH. Each of those phases lasted many months. Given the severity of the latest down move, the odds suggest another bounce in software — both on an absolute and on a relative basis — could develop again in the near future. If and when that happens, the next step will be seeing if IGV can eventually form a bullish chart pattern. That has been a missing ingredient for quite some time. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT 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.
