MACD indicator: Tata Motors, BoB, IGL among 51 stocks sending bullish signals, suggests MACD

NEW DELHI: The NSE barometer Nifty50 on Tuesday showed weakness, in a follow-up to Monday’s ‘Bearish Belt Hold’ candle on the daily charts. But at least 51 stocks on NSE were sending strong ‘buy’ signals, suggests MACD or moving average convergence divergence.

The momentum indicator signaled bullish crossovers on these stocks — a sign of bullish undertone — hinting at possible upsides in the days ahead.

The list included names such as

, , Rail Vikas Nigam, , IGL and . Except for Bank of Baroda, the rest of the stocks gained up to 11 per cent in Tuesday’s trade.

The list also included stocks such as , Mahindra CIE, EID Parry, Sunteck Realty, Coffee Day Enterprises. Glenmark Pharma, Tin Plate, Escorts and are other stocks that are sending bullish signals on the MACD indicator.

MACD is known for signaling 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 30 stocks are showing bearish trends. They included

, Future Retail, SBI Life Insurance, Radico Khaitan, Alembic Pharma, L&T Infotech and S Chand & Company.

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 at 15,786.20 at 2 pm, down 27 points or 0.17 per cent.

“Monday’s high of 15,915 would be seen as an immediate hurdle. Only a convincing move in a few heavyweights would push the index towards its magical figure of 16,000. Till then, the long wait continues. The levels of 15,750-15,700 remain to be a key zone,” Sameet Chavan of Angel Broking said in a note.

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