Should You Buy Redwood Trust (RWT) After Golden Cross?

After reaching an important support level, Redwood Trust, Inc. (RWT) could be a good stock pick from a technical perspective. RWT recently experienced a "golden cross" event, which saw its 50-day simple moving average breaking out above its 200-day simple moving average.

A golden cross is a technical chart pattern that can signify a potential bullish breakout. It's formed from a crossover involving a security's short-term moving average breaking above a longer-term moving average, with the most common moving averages being the 50-day and the 200-day, since bigger time periods tend to form stronger breakouts.

There are three stages to a golden cross. First, there must be a downtrend in a stock's price that eventually bottoms out. Then, the stock's shorter moving average crosses over its longer moving average, triggering a positive trend reversal. The third stage is when a stock continues the upward momentum to higher prices.

A golden cross contrasts with a death cross, another widely-followed chart pattern that suggests bearish momentum could be on the horizon.

Shares of RWT have been moving higher over the past four weeks, up 11.2%. Plus, the company is currently a #1 (Strong Buy) on the Zacks Rank, suggesting that RWT could be poised for a breakout.

The bullish case solidifies once investors consider RWT's positive earnings outlook. For the current quarter, no earnings estimate has been cut compared to 2 revisions higher in the past 60 days. The Zacks Consensus Estimate has increased too.

Given this move in earnings estimates and the positive technical factor, investors may want to keep their eye on RWT for more gains in the near future.

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This article originally published on Zacks Investment Research (zacks.com).

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