Filling An Earnings-Related Gap

I've been trading key gaps on stocks for a long, long time.

But it wasn't until about 6-7 years ago that I began setting up a ChartList to keep an organized list of them. That ultimately morphed into our Strong Earnings ChartList (SECL) at EarningsBeats.com, which houses our earnings research.

In order to be included on our SECL, a company MUST beat its most recent Wall Street consensus estimates as to both revenues and EPS (earnings per share). From there, they must be liquid (trading greater than 200,000 shares a day minimally), and then must have something appealing technically. All of these charts are then annotated.

NET was not included on this ChartList, but was, however, included on our Raised Guidance ChartList (RGCL) as NET raised its revenue forecast for the year. Here was the ensuing gap:

Enter Cloudflare Inc. (NET):

Many times a stock will hold the TOP of gap support, which was 68.58 in NET's case. On August 22nd, however, NET lost that gap support and has now worked its way down to the BOTTOM of gap support at 58.43. Also, the 50-day SMA is at 58.29, providing further potential support. I have no way of knowing whether NET will hold this support area, but it's a solid reward-to-risk entry point.

What does this mean?

• If it doesn't hold this gap support, it's easy to let go with a minimal loss.
• Trading isn't always about being successful, it's about managing risk.

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