This Small Company Is Poised To Explode With Earnings

I think we've done a pretty decent job of forecasting solid results and not-so-solid results.

Cadence Design Systems (CDNS) was a software company that was featured in our July 20th EB Digest newsletter. I pointed out the relative strength and soaring AD line as it prepared for earnings - and CDNS delivered. CDNS posted excellent results and it now trades very near its 2022 high.

Then there was the relative weakness shown by Roku, Inc. (ROKU) on July 25th that had me much more cautious. As it turned out, ROKU missed badly on its quarterly revenues and EPS and it gapped significantly lower after earnings.

This week, there are a TON of software companies reporting quarterly results and I'm expecting a very good one from Definitive Healthcare (DH). This is a $2.8 billion company that debuted in September 2021. It was buried in a brutal downtrend that saw it lose two-thirds of its market cap, before bottoming in May 2022

Enter Definitive Healthcare (DH):

I've drawn two green lines to identify short-term price support for entry on a future pullback. I'd add gap support at 121.77 as a potential 3rd entry point. If MANH is able to negotiate overhead price resistance near 146, where previous rallies failed in January, March, and April, then I'd find it less likely that MANH would see a selloff strong enough for it to reach all three price support levels. In this case, the rising 20-day EMA will eventually be tested and could be used as an entry point. Ultimately, I see MANH rising in the second half of the year to reach the November 2021 high in the mid-180s and possibly higher.

What does this mean?

• These smaller stocks can be extremely volatile, so you need to be willing to take much higher than normal risk.
• I've drawn two key support levels in the event the market reaction is negative on Friday morning. I ultimately see DH returning to the September high close to 50.

Happy Trading! Tom Bowley Chief Market Strategist EarningsBeats.com Better Timing. Better Trades.