Cadence Design (CDNS) surges 4.78% after 6.42% drop as technical indicators signal bullish reversal

Cadence Design (CDNS) has surged 4.78% in the most recent session, closing at $354.7, indicating strong bullish momentum. This sharp rebound follows a prior 6.42% decline, suggesting a potential short-term reversal. Key support levels emerge at $338.53 and $340.57, while resistance is evident near $362.71 and $364.89. A bullish engulfing pattern forms as the price rebounds from the $326.35 low to $354.7, signaling potential continuation of the uptrend.

Moving Average Theory

The 50-day moving average (approx. $350) and 100-day MA (approx. $345) both support the current price, indicating a short-to-medium-term uptrend. The 200-day MA (approx. $340) remains a critical long-term support level. The convergence of the 50-day and 100-day MAs above the 200-day MA suggests a strong bullish bias. However, a flattening 100-day MA could hint at weakening momentum if the price fails to sustain above $350.

MACD & KDJ Indicators

The MACD line (12,26) crosses above the signal line, reinforcing a bullish signal. The histogram’s expansion aligns with the recent price surge. The KDJ indicator shows %K at 85 and %D at 75, indicating overbought conditions. While this may suggest a near-term pullback, the %D line’s upward trajectory suggests the uptrend remains intact. Divergence between %K and price action (e.g., lower highs in %K despite higher price) could warn of exhaustion.

Bollinger Bands

The current price sits near the upper band ($364.89), reflecting heightened volatility. The bands have expanded significantly over the past two weeks, consistent with a breakout phase. A sustained close above the upper band may confirm a continuation of the uptrend, while a retest of the lower band ($338.53) could trigger a consolidation phase.

Volume-Price Relationship

Trading volume spiked to 3.57 million shares during the 4.78% rally, validating the move. However, volume has declined in subsequent sessions, which may indicate waning conviction. A divergence between price highs and volume lows (e.g., lower volume on a new high) could signal a potential reversal.

Relative Strength Index (RSI)

The RSI stands at approximately 70, entering overbought territory. While this typically signals caution, the RSI has remained elevated for weeks, suggesting a strong uptrend. A close below 60 would likely indicate a pullback, while a break above 70 may extend the rally. Caution is warranted as overbought conditions often precede corrections in volatile markets.

Fibonacci Retracement

Key Fibonacci levels from the $326.35 low to $364.89 high include 38.2% at $348.5 and 50% at $345.5. The current price ($354.7) is above the 50% level, suggesting the uptrend remains intact. A breakdown below 38.2% could target $338.53 as the next support.

Backtest Hypothesis

The backtest strategy involves entering long positions when the price crosses above the 50-day MA and RSI is below 70, with a stop-loss at the 200-day MA. Recent data aligns with this setup, as the price is above the 50-day MA and RSI is at 70. However, the overbought RSI and tightening Bollinger Bands suggest caution. A pullback to the 38.2% Fibonacci level ($348.5) could trigger a retest of the 50-day MA as support.