In total, the momentum indicator has signalled bullish crossovers on 52 stocks — a sign of bullish undertone — hinting at possible upsides in the days ahead.
The list included Union Bank of India, Indiabulls Real Estate, IDBI Bank, NMDC, Grasim Industries, and Hindustan Zinc. Others included Vodafone Idea, Future Retail, SAIL, Indian Hotels, Aster DM Healthcare and Sun TV, among others.
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 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 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 trading above 17,700.
“Since we are continuously moving upwards from 16,800, we may see some profit booking moves in between. But traders need not worry as long as we are trading convincingly above 17,150. Before this, immediate supports were placed at 17,500-17,400. We continue to remain upbeat and advise traders to focus on individual themes because even if you see benchmark index consolidating, a lot of stocks are poised well for a decent up move,” said Sameet Chavan of Angel One.
A close look at the stock chart of Vodafone Idea shows whenever the MACD line has breached above the ‘signal line’, the stock has shown an uptrend and vice versa.