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Software stocks have been in the headlines lately for all the wrong reasons — namely the iShares Expanded Tech-Software Sector ETF (IGV) . Of course, IGV is driven by its holdings, and its largest component is a name we know well: Microsoft (MSFT) . The stock has fallen roughly 26% from the intraday high reached on Oct. 28 to Tuesday’s intraday low — a span of about three months. Sustaining that pace would imply an annualized loss over 100%, making the odds of the sell-off at slowing meaningfully higher from here. Further, as of Tuesday’s close, MSFT is trading about 15% below its 200-day moving average. At its worst in April 2025, it was also roughly 15% below this long-term trend line before the stock — and the broader market — bottomed. Looking back over the past few decades, the only times MSFT traded more than 20% below the 200-DMA for extended periods were during major bear markets — the internet stock crash, the global financial crisis and 2022, for example. Thus, monitoring how far MSFT trades relative to its 200-DMA now will be important. If the stock fails to leverage this oversold condition versus its 200-day line like it did last spring, it would suggest the sell-off could persist longer — and vice versa. Not surprisingly, this has produced a deeply oversold condition for MSFT versus the broader State Street Technology Select Sector SPDR ETF (XLK) , as well, with the relative weekly RSI dipping below 22 this week. The only other time that the indicator hit a level this low was back in May 2003. While that extreme relative weakness didn’t last, MSFT continued to underperform XLK all the way through early 2013. Does that mean we should completely ignore MSFT now? No. Despite selling off nearly 20% in the past three months and trading below its 200-DMA, from a long-term perspective, the stock remains in an uptrend. In fact, MSFT now is testing the same uptrend line where it bounced last April. Putting it all together, at the very least the short-term risk/reward has become more favorable, and we now have clear risk levels to track — its low so far this week (roughly $408) and below that, $395. If the next bounce attempt is leveraged, the first target would be the 38.2% retracement of the entire decline, which comes in near $463. We understand the risks, and those risks must be managed carefully given how one-sided the move has been up to this point. While we never want to try and catch a falling knife, big, one-sided moves — up or down — eventually can lead to opportunities. — Frank Cappelleri Founder: https://cappthesis.com DISCLOSURES: Cappelleri owns shares of Microsoft. 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.
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