Should You Buy Allegro MicroSystems, Inc. (ALGM) After Golden Cross?

Allegro MicroSystems, Inc. (ALGM) is looking like an interesting pick from a technical perspective, as the company reached a key level of support. Recently, ALGM's 50-day simple moving average crossed above its 200-day simple moving average, known as a "golden cross."

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.

A successful golden cross event has three stages. It first begins when a stock's price on the decline bottoms out. Then, its shorter moving average crosses above its longer moving average, triggering a positive trend reversal. The third and final phase occurs when the stock maintains its upward momentum.

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

Shares of ALGM have been moving higher over the past four weeks, up 11.2%. Plus, the company is currently a #2 (Buy) on the Zacks Rank, suggesting that ALGM could be poised for a breakout.

The bullish case solidifies once investors consider ALGM'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.

Investors should think about putting ALGM on their watchlist given the ultra-important technical indicator and positive move in earnings estimates.

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

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