SaaSpocalypse Cancelled?

Or Is It Just On Pause?

SPY closed up another 1% on the day, marking a 9% rally off the lows in just nine trading sessions. At this pace, we could be back at all-time highs by Wednesday’s close, erasing the entire year’s drawdown in a little over a week. I don’t necessarily think it plays out that cleanly, but all-time highs are definitely back on the table.

SPY Daily Chart

From a positioning standpoint, I’ve started taking profits on names that have run hard and rotating into setups that look like they’re just getting started. On Friday I said I wanted to see confirmation from software names before getting long, and Monday’s candle delivered exactly that. I added to my MSFT trade and went long ORCL and ADBE.

While IGV gives you broad exposure to a massive amount of software names and is a decent option, I prefer picking the individual names where I see the most edge. These three are my favorites right now.

Microsoft

I’ve talked incessantly about MSFT for months and have been trading it fairly well. I’m now back in profitable territory. Monday’s candle was a strong continuation after it bounced, consolidated in a pennant, and broke higher. I trimmed some exposure last Wednesday after the gap up, just to manage risk in case we knifed lower. Instead, it held and we pushed back above the 200-week SMA, my major risk mitigation level for this name.

With a close back above that level, I think MSFT has a nice path higher into earnings, with a move back toward $400 and beyond very much in play. If this is a B-wave rally, a push toward the 100-week SMA (roughly a 50% retracement of the entire downtrend) isn’t out of the question. And if this turns out to be the bottom, then all-time highs become the bigger-picture target.

For those not long yet, I like buying a retest of the 200-week SMA if it happens, using Monday’s low as your stop or protection level. This chart shouldn’t break down from here. A close below the 200-week SMA and Monday’s low would likely send it toward $345.

MSFT Daily Chart

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Adobe

I’ve featured Adobe before, and it’s finally delivering the setup I’ve been waiting for. Price held the 200-month SMA, with Monday’s candle closing back above that level while also reclaiming two prior bearish candles in the process. I initiated a position intraday on Monday and will look to add on any retest of the 200-month SMA or Monday’s range, while keeping my stop below Friday’s low.

One of the more compelling aspects of this setup is the overhead gap near $267, which should act as a magnet for price. That level sits roughly 14% above the 200-month SMA and offers an approximate 3:1 reward-to-risk profile on the trade.

ADBE Daily Chart

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Oracle

Oracle has been an absolute dumpster fire lately, but the chart is starting to repair. After basing for nearly 70 days, we’re finally seeing strong bullish strength come in right off the 200-week SMA. Monday delivered a 13% rip higher, bouncing exactly off that key level.

The risk management here is straightforward and clean. Monday’s candle low, sitting right on the 200-week SMA, gives me a very firm level to work with. I’ll look to add on any retest of Monday’s range, with an initial target at the 100-week SMA — roughly 15% above Monday’s close.

ORCL Daily Chart