Analog Devices

Analog Devices ( ADI) is providing traders with a much less directional technical outlook right now, but there's still a trade to be made in this stock.

ADI is currently stuck in a sideways consolidation channel, bouncing around in between resistance at $40.50 and support at $37.50. That bouncing tells us something important about ADI - it tells us that there's currently a glut of supply of shares above the channel, and a glut of demand for shares below it.

It follows, then, that a break outside of the channel (in either direction) sends an important signal to traders; it lets us know that the glut has been absorbed by the people on the other side of the trade.

That's the classic example of an If/Then Trade. Put more simply, if ADI breaks out above $40.50, then we've got a buy signal. Otherwise, if ADI breaks down below $37.50, then this stock is a short candidate. Either way this setup eventually pans out, I'd recommend keeping a protective stop right on the other side of this stock's 50-day moving average.

Analog Devices shows up on a recent list of 5 Chip Stocks JPMorgan Likes.

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