Jeff Kilburg analyzes the move in Big Tech and software stocks this week.
Better-than-expected earnings growth in Q2 has kept the equity bulls in control. Underneath the surface investors are enjoying the outperformance in technology software names as markets now sit in an interesting vacuum until the Fed's critical September meeting.
Even though this rally is getting long in the tooth, I believe there is more room to run. I want to use the iShares Expanded Tech-Software Sector ETF to define risk as this basket of tech software stocks has had a tremendous run since Liberation Day lows in April while seeking to further capitalize on a move higher in this basket of software names such as Palantir , Oracle , and AppLovin . CPI data next week will further assist investors in better understanding what the Fed might do at their meeting in September, but the CME Group's Fed Watch tool is currently suggesting a 91% chance of the Fed cutting interest rates. This would be the first 2025 rate cut. Software stocks have endured some broad selling pressure recently, but Fortinet was an extreme example as the cybersecurity leader dropped by over 20% Thursday. Shares plunged after the cybersecurity firm implied a product refresh cycle may be less impactful than the bulls wanted. That being said, I still believe the momentum in tech has the ability to push associated names higher. Instead of picking one individual name, I am choosing to use IGV which owns roughly one hundred different tech companies. I want to define my risk by owning a call spread in the event momentum fades in tech software names and the impressive 2025 rally comes to a screeching halt. The trade Bought the $110 Sept. 19 IGV Call for $3.75 Sold the $120 Sept. 19 IGV Call for $0.50 This trade was executed when IGV was trading just above $110 This spread will cost an investor $3.25 or $325 per one lot The spread will have the ability to profit when IGV is trading above $113.25 DISCLOSURES: All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE 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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