This Software Leader Rebounds From Key Support Level

Software leader Clearwater Analytics (CWAN), Tuesday’s pick for IBD 50 Growth Stocks To Watch, is testing a key support level. A decisive rebound would place the stock in a new buy area. That makes CWAN stock one of the best stocks to buy and watch in today’s market.

In August, the Boise, Idaho-based financial software company said it earned 8 cents a share on sales of $89.9 million for its fiscal first quarter. Year over year, Clearwater earnings jumped 60% as sales rose 22%.

Fiscal second-quarter earnings results are due Nov. 1. Wall Street expects the company to earn 8 cents a share on revenue of $91.9 million, according to FactSet.

Clearwater provides automated investment accounting, performance, compliance and risk reporting for insurance companies, banks and other institutions.

As a result of strong long-term earnings growth and big earnings increases in recent quarters, CWAN stock boasts a best-possible Earnings Per Share Rating of 99, according to IBD Stock Checkup. This rating takes into account earnings growth and profit stability over the past three years. The two most recent quarters are weighted more heavily.

CWAN stock also has a best-possible 99 IBD Composite Rating after a tremendous stock price move since early May. That fundamental and technical strength makes CWAN one of the best stocks to buy and watch.

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CWAN Stock Rebounds

On Aug. 30, Clearwater shares cleared a buy point of 18 in a cup with handle, per IBD MarketSmith pattern recognition. In recent weeks, the stock rallied as much as 15% past that buy trigger.

Now, shares are pulling back to their key 50-day moving average, where they are attempting to find support. A conclusive rebound off this level would create a new buy area for the stock. But a sharp breach of that level would be a clear sell signal.

Clearwater shares moved up 1.4% midday Tuesday, looking to add to Monday’s gains. So far, the volume has been trending higher on the rebound, indicating institutional demand. The institutions could also be waiting for next week’s earnings results before making a committed investment.

Bullishly, the relative strength line hit a new high in recent weeks, confirming the strength of the stock’s breakout advance. A strong RS line during a weak market environment is a big positive.

Keep in mind, with the stock market outlook in market correction — and a 0%-20% recommended exposure range — investors should be playing defense until the major stock indexes improve. Monday was Day 1 of a new rally attempt, so a follow-through day could occur as soon as Thursday.