Market

As D-Street takes a breather, 94 stocks send bearish signs on MACD indicator

NEW DELHI: With the NSE barometer Nifty50 taking a breather after seven days of relentless rise, at least 94 stocks on the NSE are looking weak on the momentum oscillator MACD or moving average convergence divergence or MACD.

The momentum indicator signalled bearish crossovers — a sign of bearish undertone — on these counters, hinting at possible downsides in the days ahead. Some of the stocks have fallen up to 18 per cent in Tuesday’s trade so far.

The list included

, Karur Vyasa Bank, Tata Motors, Rail Vikas Nigam, GMR Infra, , NCC, India Cements, NHPC, City Union Bank and HFCL.

Some other stocks showing negative trends included Himadri Speciality, Zee Media, Snowman Logistics, Take Solutions, SCI and Gati.

MACD is known for signalling trend reversals in traded securities or indices. It is the difference between the 26-day and 12-day exponential moving averages. A nine-day exponential moving average called the ‘signal line’, is plotted on top of the MACD to indicate ‘buy’ or ‘sell’ opportunities.

ETMarkets.com

When the MACD crosses above the signal line, it gives a bullish signal, indicating that the price of the security may see an upward movement and vice versa.

Data showed 15 stocks are showing bullish trends. They included Dixon Technologies, J Kumar Infraprojects, eClerx Services, Repco Home Finance and Megadh Sugar.

UP aETMarkets.com

The MACD indicator should not be seen in isolation as it may not be sufficient to take a trading call, just the way a fundamental analyst cannot give a ‘buy’ or ‘sell’ recommendation using a single valuation ratio.

This is because MACD is a trend-following indicator. Though traders can increase the sensitivity of MACD by using shorter moving averages for computing MACD (e.g. 5-day and 12-day moving averages), the lag effect will still be there. Hence, traders should make use of other indicators such as Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and Stochastic to confirm an emerging trend.

On Tuesday, the Nifty50 was quoting below the 15,550 level after hitting a high of 15,660.75 in opening trade.

Analysts said there is a good possibility of Nifty50 reclaiming the 15,700 level in the coming days, as long as it stays above crucial support at 15,370.

Sameet Chavan of Angel Broking said, “It might sound a bit repetitive, but it’s our duty to keep reminding that traders should not get complacent and follow proper risk management because the low-hanging fruits are already gone and we could see bouts of profit-taking,” Chavan said.

Mazhar Mohammad of Chartviewindia.in said traders can look for a target of 15,750-850 levels. He said it is critical for the index to sustain above 15,374 to retain positive bias. The analyst advised traders to use any intraday Nifty50 dips to create fresh longs, with a stop loss below 15,374 on a closing basis.

Understanding MACD
A close look at the stock chart of Tata Power shows whenever the MACD line has breached above the signal line, the stock has shown an uptrend and vice versa.

Tata powerETMarkets.com

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