One Stock to Watch If This is a Dead Cat Bounce
Step outside your comfort zone to start August and take a look at an intriguing SaaS leader
We are in the doldrums of the sports calendar, exacerbated by the World Cup hangover. Weeks away from college football. MLB trade deadline doesn’t move the needle. Nothing but training camp tidbits from NFL. NBA free agency has come and gone. The MLS will not take it from here.
On July 1, I was watching the U.S. hold off Bosnia Herzegovina and dreaming of a quarterfinal run. On Aug. 1, I’m watching Obsession through my fingers.
A lot can change in a month.
For these dog days of summer, I’m handing over the remote to my wife. She’s earned it with how much I hog the television. Love Island? Fire it up. Jennifer Gardner TV show? Hit me with the drama. It’s no longer cool to be the sports-crazed husband who doesn’t share in their wife’s interests. And you know what? I’ve learned to enjoy the break from the usual.
You can learn a thing or two stepping outside of your comfort zone.
Like taking a flier on a stock down 30% in the last year …
On June 30, the Nasdaq-100 (NDX) was a chip shot from record highs. Fast forward one month, and the NDX just turned in its worst month since March 2025. And it could have been worse; Wednesday’s lows had July looking like the NDX’s worst month since 2022. Instead, semis and AI-adjacent names crammed gains in on the last two days of the month to soften the blow.
Solid earnings from hyperscalers and Big Tech drove some of the late-week rally. But a more niche driver was the devious move from Ken Griffin’s Citadel. FinTwit couldn’t get enough of the power play on Situational Awareness Thursday.
AI-adjacent stocks and semiconductors were tremendously oversold before the massive Thursday melt-up and Friday follow-through. After such a dour July, the strong finish to the month restored the vibes, and the Citadel leverage play was enough of an explainer for the AI infrastructure rout.
Contrarians: before piling back into AI-driven names, heed Agamemnon’s wise words to Odysseus in Hades.
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If you haven’t read/seen The Odyssey (WHAT are you doing), Greek overlord Agamemnon was killed by his wife Clytemnestra despite coming home victorious after sacking Troy. When Odysseus met Agamemnon’s spirit in the underworld, Agamemnon cautioned Odysseus not to return home a hero, “expecting garlands and praise.” Instead, he advises Odysseus to return in disguise, to ‘take your time. Assess.’
It’s a pretty cool moment in the movie and something to think about heading into August. Maybe semiconductors and the AI trade come roaring back. But there are still plenty of overhangs throughout the market; inflation and Iran aren’t going away. Bond yields are looking pesky. In the event the strong close to July was a dead cat bounce, there’s one sector and one stock poised to take advantage of.
Workday WDAY 0.00%↑ is a human resources management software company. The stock, despite a 25% year-over-year deficit, has been resilient in the face of the ‘SaaSpocolypse’, rallying 31% in July while AI-adjacent names sold off and corrected. WDAY traded as high as $160.55 on Wednesday and closed the month trading above $160.
But when semiconductors picked up the pace — thanks in large part to Citadel’s cheeky move against Situation Awareness — WDAY shed by 6% on Thursday.
A rotation reversal.
At the height of WDAY’s Wednesday rally, the stock’s 14-Day Relative Strength Index (RSI) crossed ‘overbought’ territory at 70. Thanks to Thursday’s drawdown, its since cooled to 60.
Workday has formed multiple bottoms since April, but was stymied this week at a trendline connecting March-to-July highs. This area conveniently coincides with its 200-day moving average, a trendline toppled only once (Wednesday) since November.
How can the stock clear that trendline? With some good old fashioned bullish seasonality.
Workday is THE best stock to own in August, historically. Going back 10 years, WDAY averages a 9.7% return in August, with a 90% win rate. No other name on the S&P 500 comes close, and there are no other SaaS stocks present.
You’ll never guess the best-performing ETF in August as well. None other than iShares Software ETF (IGV), of which WDAY is a top 20 holding (1.3% of the fund). A tidy 1.9% average August return in the last decade, with a commendable 60% positive rate.
Where does that seasonality come from, though? And where can it come from next month?
Workday reports second-quarter earnings after the close on Thursday, Aug. 20. The stock has a mixed post-earnings history; it gapped higher by 5.2% in May but four of the last eight have resulted in next-day moves to the downside. Regardless of direction, the average post-earnings move the last two years is healthy 6.9%, so there’s likely to be some mid-month action.
Workday’s May gap up also came in the face of the company’s full-year guidance falling short of estimates. So that’s the metric to be on the lookout for in two weeks.
Options traders have scoffed at WDAY’s July rally. The stock’s 10-day put/call volume ratio of 1.03 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 92nd percentile of its annual range. It’s 50-day ratio shows calls ruling out on an absolute basis (0.76), but four percentage points from a 52-week high. Short term options traders? Also bearish, per a Schaeffer's put/call open interest ratio (SOIR) of 1.12 in the elevated 72nd annual percentile. Quite the put skew across multiple metrics. That’s a trend, my friend.
The pessimism doesn’t end in the options pits. The 27.4 million shares sold short accounts for 13.4% of WDAY’s total available float. Shorts have been starting to cover since July, but there’s still ample room to squeeze bears. At the stock’s average pace of trading, it would take shorts nearly six full trading days to buy back their bearish bets.
Macro Musings and a Word From My Muse
But software is old news, right? AI is here to make all of these companies obsolete, capexes be damned. Was the real dead cat bounce the software stock rally of July?
Maybe for some names, but not for the SaaS companies that make sound decisions.
It seems like Workday is one of the good ones.
I grabbed drinks with my wife and her old boss Wednesday, with Workday’s mid-week pop right fresh in my mind. I asked the two upper-level HR professionals about them.
“Oh, too expensive for us,” they shook their head. “But its (Workday) great, the Rolls Royce of HR services. Well integrated. Great for companies with thousands of people. And I think they’re working on a platform for small-to-medium sized companies.”
I pressed my wife later, and here is her Substack debut, verbatim:
They’re like the Salesforce* of human relations. All the Fortune 500 companies use it (Workday). AI can’t do what they do, because we (HR) only know AI as a problem-solving tool. It can’t act as a system. Workday does everything; payrolls, performance, company storage. I don’t know how AI can take that over. It can enhance it, sure, but not take it over.
—Ma wiiiiife
*Salesforce (CRM) stock just wrapped up its best month since March 2023.
Mind you, she doesn’t work for Workday, or even use it. There was no reason for her to tout it in such a way. I even double-checked her work:
As Workday states, reasoning alone cannot run payroll, close the books, onboard a worker, or enforce segregation of duties. Those require deterministic rules, approval chains, and data models built over twenty years. Workday combines probabilistic reasoning with deterministic execution to deliver enterprise AI. Standalone agent platforms sitting on top of extracted enterprise data are structurally incomplete.
—Josh Bersin, The Reinvention of Workday: From System of Record to Platform of Agents
“It’s a different set of technologies. It leverages what we built in the past, but we have to think like a startup again.”
—Workday Chief Executive, Chair and Co-founder Aneel Bhusri
Sounds like they get it over there.
Taking a flier on a SaaS powerhouse while the rest of the world piles back into AI infrastructure is certainly stepping out of a comfort zone, like psychoanalyzing Love Island contestants after watching Rodri control a midfield.
But when everyone rushes back to the same stuff, I can’t help but be skeptical. In the wise words of Agamemnon, take your time and assess.
If Workday and the SaaS sector surged into August, they’d be overbought and stretched too thin. Instead, the chatter AI infrastructure garnered on Thursday took some heat off quietly resurgent software.
While the rest of Wall Street breathes a collective sigh of relief and cheers rallying semiconductors, don’t forget about the stocks that stood tall during the July storm.
Really well done piece here