• Software is up 38% off its June low — and this time positioning backs the move: the S3 Active Long-to-Short ratio has climbed from 6.3x to 8.4x off the bottom.

• May showed what a hollow rally looks like: the index popped 14% with the ratio still falling — and gave it all back within four weeks.

• Shorts capitulate, active managers accumulate: covering has done more of the work than new buying, while active ownership sits at a 12-month high with adds in 42 of 58 stocks.

In May the shorts pressed the rally; this time they're covering it.

The S&P 1500 Software index closed Thursday at 8,502, up 42% from its March low of 5,994 and within 7% of last October's peak — and unlike May's hollow rally, active institutional positioning is supporting the move. Across the 58-name index constituency, the S3 Active Long-to-Short ratio now stands at 8.4x — $8.40 of long bets for every $1 of short bets — up from 6.3x at the June low and still below where it stood a year ago; the bearish shift in positioning has only partly reversed.

Short bets are down 15% from June 1's record $154 billion in a market that rose 6%, and average short interest has slipped from a peak of 9% of shares outstanding to 8%. NOW, CRM, NTNX and DDOG shorts have roughly halved as a share of each company. Active managers grew their book 40% off the low, ahead of the index's 38%, and now own 28.7% of shares outstanding, a 12-month high, with adds in 42 of 58 stocks. Even after all that covering, average short interest is still 8% of shares outstanding versus 5.4% a year ago.

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