MACD indicator: Travel, bank stocks among 84 scrips giving bullish signals on MACD chart

NEW DELHI: With Nifty50 rising for the third straight session on Tuesday, dozens of stocks are sending strong ‘buy’ signals, according to MACD or moving average convergence divergence.

The momentum indicator signaled bullish crossovers on 84 stocks — a sign of bullish undertone — hinting at possible upsides in the days ahead.

The list included many economic recovery plays such as Indian Hotels and Chalet Hotels, Indian Railways’ ticketing arm IRCTC, amusement park stock Wonderla Holidays, and also aviation scrip InterGlobe Aviation.

Banks such as Dhanalakshmi Bank, Federal Bank, Au Small Finance Bank and ICICI Bank are also included in the list. Cement stocks such as India Cements and The Ramco Cements and auto ancillary stocks such as Motherson Sumi and Setco Automotive 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 19 stocks are showing bearish trends. They included South Indian Bank, UCO Bank,

, Skipper, , Prince Pipes and Ceat.

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 15,884 at 1.30 pm, up 50 points or 0.32 per cent. A breach above 15,900-920 would turn sentiment bullish, analysts said.

“Any sustainable move above 15,900 level may drive the index towards the 16,000-16,100 range. Any violation of an intraday support zone of 15,800 level may trigger profit booking towards 15,750-15,700 level,” Rajesh Palviya said.

As long as the index does not cross the 15,920 level, strong buyers would not enter the market, said Shrikant Chouhan of Kotak Securities. Chandan Taparia of Motilal Oswal Securities said that the NSE barometer needs to hold above the 15,800 level to see a move towards 15,915 and 16,000 levels. Downside supports are seen at 15,700 and 15,600 levels, he said.

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