In total, the momentum indicator signaled bullish crosses on 52 stocks – a sign of bullish nuance – hinting at possible increases in the days ahead.
The list included Union Bank of India, Indiabulls Real Estate, IDBI Bank, NMDC, Grasim Industries and Hindustan Zinc. The others included Vodafone Idea, Future Retail, SAIL, Indian Hotels, Aster DM Healthcare, and Sun TV, among others.
MACD is known to signal trend reversals in the securities or indexes being traded. This is the difference between the 26-day and 12-day exponential moving averages. A nine-day exponential moving average called a “signal line” is drawn above 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 experience an upward movement and vice versa.
The data showed that four stocks were showing bearish trends. They included Ramco Systems, Nagarjuna Fertilizer, Dixon Technologies, Pioneer Embroideries, Indian Metals & Ferro Alloys, and Palash Securities.
The MACD indicator should not be viewed in isolation, as it may not be sufficient to take a trade call, in the same way that a fundamental analyst cannot give a ‘buy’ or ‘sell’ recommendation in using a single valuation ratio.
Indeed, the MACD is a trend following indicator. Although traders can increase the sensitivity of the MACD by using shorter moving averages to calculate the MACD (e.g. 5 and 12 day moving averages), the lag effect will still be present. Therefore, 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 Tuesday, the Nifty50 was trading above 17,700.
“Since we are continually moving up from 16,800, we might see some profit reservation moves in between. But traders don’t have to worry as long as we are convincingly trading above 17. 150. Prior to that, immediate supports were placed at 17,500-17,400. We continue to remain bullish and advise traders to focus on individual themes as even though you see the benchmark consolidating, many stocks are well positioned for a decent rise, ”said Sameet Chavan of Angel One.
A close look at the Vodafone Idea stock chart shows that whenever the MACD line broke the “signal line” the stock trended higher and vice versa.