Software Vs. Staples Divergence Tests Sector Rotation Strategy
Efficiently rotating between overbought and oversold sectors, factors, or stocks is a well-established method for outperforming markets. Like any strategy, the hard part is timing, or properly estimating when a pair of sectors, factors, or stocks is about to reverse their respective trends.
Currently, there is a massive divergence between software stocks and consumer staples. Thus far in 2026, the software ETF, , is down 20%, while , the consumer staples ETF, is up 12%, and the S&P 500 is flat for the year. Is it time to sell staples and buy software?
To help us better appreciate the relationship and how it may trade, we share three graphics below. The two graphs on the left show that call volume in the software sector is spiking to…
