The ‘ultimate contrarian trade’ is starting to pay off for investors. Why it might have more room to run.

A popular contrarian pair trade — long software vs. short semiconductors — appears to be reversing after an extreme divergence. BTIG’s Jonathan Krinsky notes the S&P 1500 software-to-PHLX Semiconductor ratio plunged 43% below its 200-day moving average, the most extreme reading on record, suggesting potential for violent mean reversion with software likely to outperform chips. Evidence on Wednesday showed software up 4.5% while the SOX rose just 0.2%. Krinsky also flagged frothy gains in memory-chip names as a vulnerability that could weigh on semiconductors. Despite this, broader market internals remain constructive: the S&P 500 hit a record high and the Nasdaq-100 posted an 11-day winning streak, implying the rally may have further to run even if some consolidation occurs.