Shares of relationship management software solutions provider NetSuite Inc (N) on Tuesday staged a notable bullish reversal along with the broader market. From a technical perspective, Tuesday’s intraday lows held an important support level, and N stock looks increasingly ripe for a break higher that — with a little help from Santa — could take place into year-end.
On Oct. 23, NetSuite reported much better-than-expected third-quarter results, and the stock subsequently rallied in a big way. Earnings of 11 cents per share beat estimates for 4 cents, and revenues of $143.7 million cleared a bar for $141.61. Year-over-year, EPS were up 22% while sales were up 34%.
And for the cherry on top, Netsuite also upped its sales guidance for 2015, from $706.60 to a range of $715 million to $725 million.
Since the earnings report, the news wire has been quiet for N stock. However, analysts have been busy updating their models and initiating coverage, much of which has had at least a positive tone. For instance, just this morning, Nomura initiated coverage on NetSuite, starting off with a “neutral” rating but a price target of $119 — about 12% higher.
In the bigger sense, tech stocks are holding up well and showing leadership, which also has been supporting N stock.
N Stock Charts
Looking at the multiyear weekly chart, we see that in April, N stock held its support line from 2010 as the stock dropped about 40% in two-and-a-half months. To keep this in context, though, Netsuite also exhibited a steep run in 2012 and 2013, so in a bigger sense, the selloff this past spring can be looked at as a mean-reversion move.
After some basing, N stock then began to climb again, supported by the bid in the broader technology sector, and it’s currently coiling up below its February highs. Momentum indicators such as the Relative Strength Index (RSI) are also pointing higher again.
On the daily chart, note that after breaking below its 200-day simple moving average (red line) in March for the first time since 2011, N stock recovered nicely, and with the help of the 11.5% earnings rally on Oct. 24 cleared back above this moving average. The stock then rallied for another few days after the earnings report and settled into a constructive-looking consolidation phase that may be a so-called bull flag pattern. On Tuesday, N stock had an intraday scare that took it marginally below this bull flag pattern, but a sharp turnaround in the broader market helped the stock turn black on the day and move right back into the middle of this multiweek trading range.
Tuesday’s turnaround also left a bullish candle/tail behind on the daily chart, confirming good near-term support for the stock. Active investors and traders could now look to buy N stock on a break above $108 for a move toward the $115-$120 range.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
