Analog Devices (ADI) Now Trades Above Golden Cross: Time to Buy?

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

There's a reason traders love a golden cross -- it's a technical chart pattern that can indicate a bullish breakout is on the horizon. This kind of crossover is formed when a stock's short-term moving average breaks above a longer-term moving average. Typically, a golden cross involves the 50-day and the 200-day moving averages, since bigger time periods tend to form stronger breakouts.

Golden crosses have three key stages that investors look out for. It starts with a downtrend in a stock's price that eventually bottoms out, followed by the stock's shorter moving average crossing over its longer moving average and triggering a trend reversal. The final stage is when a stock continues the upward climb 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.

Over the past four weeks, ADI has gained 10.5%. The company currently sits at a #3 (Hold) on the Zacks Rank, also indicating that the stock could be poised for a breakout.

The bullish case solidifies once investors consider ADI's positive earnings outlook. For the current quarter, no earnings estimate has been cut compared to 12 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 ADI 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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