NEW DELHI: Even as the market took a breather after two days of sharp rally, at least 70 stocks on NSE, mostly midcap and smallcaps, were sending ‘buy’ signals on MACD or moving average convergence divergence. IT stocks Infosys and Wipro and Ruchi Soya were among nine stocks that flashed bearish signs.
In total, the momentum indicator has signalled bullish crossovers on 72 stocks — a sign of a bullish undertone — hinting at possible upsides in the days ahead.
The list included sugar producers Balrampur Chini, Dhampur Sugar, airline operators SpiceJet and Jet Airways, IT firm HCL Technologies and small finance bank Suryoday Small Finance Bank. Rail Vikas Nigam, Jaypee Infratech, CPCL, Godawari Power, Natco Pharma, Rolta India and Ramkrishna Forgings, are among other stocks that have featured on the list.
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.
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 nine stocks were showing bearish trends. They included Infosys, Wipro, Ruchi Soya, Bharat Dynamics and Alkem Labs, among others.
The MACD indicator should not be seen in isolation, as it may not be sufficient to make 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 use other indicators such as Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns, and Stochastic to confirm an emerging trend.
On Wednesday, the Nifty50 was trading below 18,050.
The 18,000 level came in much faster than analysts anticipated.
Independent Analyst Manish Shah said Nifty50 has bottomed out at 15,600 and within a span of 19 days, it has risen 15 per cent. The RSI has hit the overbought zone and the Nifty50 is at major resistance. “Though Nifty50 remains bullish, markets are vulnerable to at least a corrective decline. Traders should brace for a correction in the next couple of days, he said.
Sameet Chavan of Angel One said: “January’s high of 18,350 is not so far away. Considering the ongoing momentum, we advise traders to use intra-week decline to add longs. As far as supports are concerned, 17,850-17,800 is likely to provide an immediate cushion; whereas on the flip side, 18,200-18,350 are the levels to watch out for. One should avoid taking contradictory bets at the current juncture,” said
A close look at the stock chart of HCL Tech shows that whenever the MACD line has breached above the signal line, the stock has shown an uptrend and vice versa.
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