Off the back of a massive earnings beat, Netsuite (N) had “gap and go” price action, running from the low 90’s all the way up to 110 in the course of two weeks.
When stocks have this kind of move on the back of great earnings, they tend to work off overbought conditions through a time-based correction instead of a price based correction.
N has been in a sideways range for about a month, and, as it stands, it looks as though it’s about to break support and rollover. Not so fast.
If there is an obvious support level in the context of a very large trend, institutions will often drop the bids out of the stock, thereby breaking that support level and having short-term traders stop out of their positions.
The funds will then scoop up the stock at the stop loss prices and then reverse higher. This is the anatomy of a failed breakdown trade, and N looks ready to have one of those.
The Trade
If N closes above 105 then the failed breakdown setup will have completed and you should expect the stock to run back to the top of the range at 110. The January 110 calls are a good trade.
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