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Should You Buy Cadence Design Systems (CDNS) After Golden Cross?

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Cadence Design Systems, Inc. (CDNS - Free Report) reached a significant support level, and could be a good pick for investors from a technical perspective. Recently, CDNS's 50-day simple moving average broke out above its 200-day moving average; this is known as a "golden cross."

Considered an important signifier for a bullish breakout, a golden cross is a technical chart pattern that's formed when a stock's short-term moving average breaks above a longer-term moving average; the most common crossover involves 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.

CDNS has rallied 21.5% over the past four weeks, and the company is a #1 (Strong Buy) on the Zacks Rank at the moment. This combination indicates CDNS could be poised for a breakout.

Once investors consider CDNS's positive earnings outlook for the current quarter, the bullish case only solidifies. No earnings estimate has gone lower in the past two months compared to 4 revisions higher, and the Zacks Consensus Estimate has increased as well.

Moving Average Chart for CDNS

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


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