Trading the Software Selloff: Technical Levels and Tactical Entries

The software selloff isn't just a story of individual stocks. The broader ETF tape is flashing a clear bearish signal, confirming the sector-wide pressure. The iShares Expanded Tech-Software ETF (IGV) carries a "strong sell" technical rating, with moving averages confirming a decisive shift in momentum. This isn't a minor pullback; it's a breakdown in trend integrity.

The setup is classic. After a powerful run, the Morningstar US Technology Index pulled back from recent highs. That move from strength to weakness is the first red flag. Now, the technicals show where the battle lines are drawn. Key support levels are the critical floor preventing further declines. If price holds there, it suggests demand is stepping in to absorb the selling. But a break below that support zone signals the bears have taken control, likely triggering more automated selling and extending the downtrend.

On the other side, resistance levels cap any rallies. These are the price zones where selling pressure overwhelms buying interest. For the software sector, resistance is forming at the old highs, making it difficult for bulls to regain ground. The current tape shows supply dominating demand, with price action testing those resistance levels and failing to hold gains.

The bottom line for traders is that the technical environment is hostile. The moving averages are confirming bearish momentum, and the broader index is retreating from its peak. This creates a clear supply/demand imbalance: sellers are in control, and buyers are hesitant at resistance. Until we see a decisive break above key resistance or a strong bounce off critical support, the trend remains down.

Stock-Specific Technical Setups: Levels and Trends

While the sector ETF is in a breakdown, some individual software and tech-adjacent stocks are showing durable trends that create tactical entry points. These are names finding support within the broader sell-off, offering pullback opportunities for traders who can distinguish between noise and structural strength.

First, consider Rubrik (RBRK). The stock is a pure-play on the ever-growing cybersecurity trend, a sector that shows no signs of cooling. Its technical setup is supported by a clear growth trajectory, with revenue up 48% last quarter. The key for traders is the support zone near its recent lows. If price holds above that level, it suggests the strong demand for its breach recovery solutions is still intact. A break below would signal the trend is broken, but for now, the support acts as a potential entry point for a bounce.

Then there's Comfort Systems USA (FIX), a data center play riding the AI boom. The stock is in a powerful uptrend, with its revenue and operating margin soaring as demand for cooling and power infrastructure explodes. Its technical strength is evident in a backlog at an all-time high of $9.4 billion. This creates a robust support structure; even in a sector-wide pullback, the fundamental demand for its services provides a floor. Traders watching for a pullback into that support zone could position for a continuation of the 28%+ growth trend.

Finally, Xometry (XMTR) presents a similar story in the manufacturing space. The company is building a digital network, and its adoption metrics are strong, with active suppliers growing 28%. This durable trend creates a technical foundation. The stock's recent range shows it's finding support after a run, making a pullback into that zone a potential tactical entry. The setup hinges on the trend integrity of its growth, which appears intact.

The bottom line is that within the sector selloff, these three names stand out. They are finding support because their underlying growth stories are strong and their trends are durable. For the technical trader, the play is to wait for a pullback into a defined support zone, then look for signs of buying pressure to confirm the trend is resuming.

Trading Strategy: Entries, Stops, and Targets

The technical setups we've identified provide a clear framework for action. The key is to trade the supply/demand imbalance, not fight it. Here's how to structure entries, stops, and targets for the software sector and the individual names showing strength.

Enter on Pullbacks to Key Support Levels. The first rule is to buy the dip, but only at the right dip. For the broader sector, the iShares Expanded Tech-Software ETF (IGV) is in a strong sell technical rating, meaning the trend is down. The optimal entry is not at the current price, but on a pullback into a defined support zone. This is where demand is thought to be strong enough to prevent further declines. For individual names like Rubrik (RBRK) or Comfort Systems USA (FIX), their support levels are their recent lows or established price zones. A trader should wait for price to retest that support, looking for signs of buying pressure-like a bullish candlestick pattern or a spike in volume-to confirm the demand is stepping in. This is the tactical entry: buying the bounce from support.

Set Stop-Losses Below Key Support Levels. Risk management is non-negotiable. A stop-loss order must be placed below the identified support level. This is the trigger point. If price breaks below that support, it signals the bears have won, and the trend is broken. The stop protects capital by automatically exiting the position before losses widen. For example, if you enter a trade on a pullback to Rubrik's support zone, your stop would be set just below that zone. This turns the support level into a hard risk boundary.

Target Resistance Levels Where Buyers Have Backed Off. The profit target is the flip side of the entry. After buying at support, the logical place to take profits is at the nearest resistance level. This is where selling pressure has historically overwhelmed demand, causing price to reverse. For the sector ETF, that resistance is the old high from the recent rally. For a stock like Xometry, it's the recent price peak within its current range. The target is not a guarantee, but a zone where the supply/demand imbalance is likely to shift back in favor of sellers. Traders can take partial profits at this level and let the rest ride if the trend remains strong.

The bottom line is a disciplined, mechanical approach. Wait for the pullback to support, place a stop below it, and aim for the next resistance. This strategy respects the current trend and uses the market's own price action to define the trade.