When One Sector Implodes And The Market Shrugs
StatsEdgeTrading
Yesterday looked like a full-on market meltdown… until you actually checked the stats.
On the surface, the S and P 500 completely fell out of bed. Big red candle, ugly intraday slide, scary headlines. At the same time, small caps and the equal weight S and P quietly held up. In fact, market breadth was slightly positive – more stocks finished green than red.
The carnage was almost entirely in software. IGV, the software ETF, got smoked on the back of an AI headline about Anthropic. Instead of digging for winners and losers, big money just slammed the whole sector via the ETF. When the basket gets hit, everything inside it gets dragged together, regardless of whether the underlying business actually changed.
For a discretionary trader, this is where the opportunity starts, not ends.
Relative strength on a bad tape is like a beach ball shoved under water. The broad selling pressure pushes everything down, but the strongest names are just waiting to pop once the force lifts. On a day when software is obliterated, any software stock that closes green is sending you a very loud signal.
The simple process:
Use a free screener like Finviz.
Filter for your basic liquidity rules.
Set “performance: up on the day.”
Restrict the industry to software applications and software infrastructure.
Toss out the flat buyouts and weird one-offs.
What you are left with is a short list of software names that refused to participate in the panic. Those become your research list for potential momentum or pullback trades if we get a relief bounce in the sector.
On my side at StatsEdgeTrading, the core swing trading systems have been backtested all the way to the year 2000 – through dot com, the financial crisis, COVID, wars, and more. There are flat years and down years in that equity curve, and that is fine. The job of the system is survival and steady edge. My job, if I want to take a shot, is to layer a small, well-defined discretionary idea on top of that.
Action plan: ignore the narrative, study the charts, hunt for relative strength in the middle of sector blowups, and size those trades small enough that they do not threaten your core, systematic approach.
If you want the systematic side handled for you – swing, day trading, and longer term systems – come hang out with us at www.statsedgetrading.com. Quant beats vibes.