4 Nifty50 stocks, 31 others sending out sell signals on MACD

NEW DELHI: Domestic stock indices might have taken a pause after the recent rally. At least four of Nifty50 stocks – Bharti Airtel, HCL Technologies, Infosys and Asian Paints – along with 31 others, have generated ‘sell’ signals on MACD or moving average convergence divergence.

In total, the momentum indicator has signaled bearish crossovers on 35 stocks — a sign of bearish undertone — hinting at possible downsides in the days ahead.

Other than the four Nifty50 names, stocks such as Berger Paints, Escorts, Mindtree, InterGlobe Aviation, Mphasis, Coforge and Pidilite Industries have sent bearish signals. Bajaj Electricals, Apollo Pipes, Timken India and Century Enka and MSTC are some other stocks on the bearish list.

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 39 stocks were still showing bullish trends. They included NHPC, Canara Bank, Federal Bank, Hindalco Industries, Bharat Forge, BSE, BEL and Angel Broking, among others.

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 afternoon, Nifty50 slipped below 17,700 level. Gaurav Ratnaparkhi of Sharekhan said the hourly Bollinger bands are getting into a contraction phase, which suggests the index can witness a brief consolidation before further upside.

Understanding MACD

A close look at the stock chart of Bharti Airtel shows whenever the MACD line has breached below the signal line, the stock has shown a downtrend and vice versa.