MACD indicator: Infibeam, Godrej Agrovet among 42 stocks set of rally, suggests MACD

NEW DELHI: Even as benchmark indices continue to find resistance at higher levels, at least 42 stocks on the NSE are 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 mostly mid and smallcap names such as

, , Texmaco Rail and Godrej Agrovet. These stocks are up 7-12 per cent in Wednesday’s trade.

The list also included stocks such as HUDCO, ITI, Genus Paper, KRBL, Aditya Birla Fashion, Ramco Systems, and . Rites, ABB, CPCL, GSS Infotech, and Nesco are other stocks that are sending bullish signals on the MACD indicator. All these stocks were trading higher in Wednesday’s trade.

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 38 stocks are showing bearish trends. They included Tata Power,

, , CESC and , 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 Wednesday, the Nifty50 briefly crossed the 15,850 level. It was later trading at 15,760.95, down 11.80 points or 0.07 per cent.

“Unless Nifty50 sustains above 15,765, it may attract selling pressure on an intraday basis. In such a case, it may first fall towards its 20-day simple moving average, whose value is placed around 15,650 level. Contrary to this, strength will resume if the bulls manage to push the index beyond 15,900 on a closing basis,” said Mazhar Mohammad of Chartviewindia.in.

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