New Delhi: Even as the broader market is in a consolidation phase, dozens of stocks are sending ‘sell’ signals on MACD or moving average convergence divergence, as of Friday’s close.
In total, the momentum indicator has signalled bearish crossovers on 46 stocks — a sign of bearish undertone — hinting at possible downsides in them in the days ahead.
The list included
, ONGC, , , REC, ICICI Prudential Life and , among others.
Stocks such as
, , , , and are showing bearish trends on the MACD indicator.
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 82 stocks were showing bullish trends. They included , Trident, EIH, Arvind, , , and Mahindra & Mahindra.
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 (eg. 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 Friday, the Nifty50 closed at 17,539.45, down 3.35 points or 0.02 per cent.
“For traders now, the 20-day SMA (Simple Moving Average) and 17,450 would be the important support zone while 17,700 could act as a major hurdle for the market. We are of the view that a directional upside move is possible only after the 17,700 breakout. Above this, the index could move up to 17,900-18,000. On the flip side, below 17,450 the index could retest the level of 17,250-17,150,” said Amol Athawale, Deputy Vice President, Technical Research, Kotak Securities.
Nagaraj Shetti, Technical Research Analyst at HDFC Securities said the short-term trend of the Nifty50 remains choppy.
The market is now placed within a broader range of 17,800-17,300 levels and the movement within this range is likely to continue for next week, he said.
“One may expect selling pressure building from the highs around 17,800 levels and the buyer is likely to emerge from the lows of 17,300 levels. Hence, the market action could be a buy on dips and sell on rise opportunity for the near term,” he said.
Understanding MACD
A close look at the stock chart of IDFC First Bank shows whenever the MACD line has breached below the signal line, the stock has shown a downtrend and vice versa.
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