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Technical analysis is a great predicting tool as long as it comes with the understanding that setups are only setups and can fold.
And, when they do, the ensuing moves can be fast and large.
For example, let's take a look at a daily NetSuite (NYSE:N) chart from last October with its 200-day moving average, which shows a nice turn from a little "W" bottom and a test of its 200 DMA.
Click to enlarge
The technical presumption in the recent decline was that the prior breakout point in late December 2013 and early January would define a low coinciding with another test of the 200 DMA. In fact, this is exactly what played out in early February, perpetuating a run to new highs.
However, the takeaway is that the second test of the 200 DMA and the prior breakout point at around 100 were suspect as the second mouse gets the cheese, so to speak. In this case, the second probe of the 200 DMA would see Netsuite faltering with the bears getting the cheese, or the move below the 200 DMA. Range precedes price, and the large-range decliner on March 21 suggested a failure below the 200 DMA. The next day's follow-through confirmed the urgent selling. Following a turn-up on the 3-Day Chart and a 1-2-3 Snapback sell setup on April 2, Netsuite resumed its accelerated downside momentum.
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