Stay cautious! These 20 stocks are giving bearish signal on MACD

• Follow

At the time when benchmark equity indices BSE Sensex and NSE Nifty scaled their fresh record highs on Wednesday, the momentum indicator Moving Average Convergence Divergence (MACD) is signalling bearish crossover on 20 counters on the NSE.

Vedanta, IndusInd Bank, Radico Khaitan, Century Extrusions, KEI Industries, Bhagyanagar Properties, JHS Svendgaard, HEG, Rossari Biotech, RPG Life Science Cineline India, Carborundum, NDTV, Aphageo (India), Seamec, Manaksia Steels, Carborundum Universal, SMS Life Sciences, Lakshmi Finance and Khandwala Securities were stocks which witnessed bearish crossover.

What is MACD?

It is a momentum oscillator which is developed by Gerald Appel to indicate momentum. MACD is a lagging indicator and is made using two exponential moving averages.

Going with textbooks, it is the difference between the 12-day and 26-day exponential moving averages (EMA). A nine-day exponential moving average, called the ‘signal’ line, is plotted on top of the MACD to reflect ‘buy’ or ‘sell’ opportunities.

Calculation

MACD Line = (12-Day EMA minus 26-Day EMA)

Signal Line = (9-Day EMA of MACD Line)

Signal Line crossovers are the most basic interpretation of MACD indicators.

Interpretation

When MACD crosses above the signal line, it gives a bullish signal on the charts, indicating that the price of the security may experience an upward movement. On the other hand, a bearish crossover occurs when the MACD crosses below the signal line. At present, stocks like SpiceJet, Jubilant Foodworks, Dabur India, Container Corporation, Gravita India, Aarti Industries, Asian Paints, Mphasis, Astron Paper and Suven Life Sciences are among 26 stocks that are trading above the signal line.

Going with technical analysts, MACD is an unbounded indicator and therefore it is not particularly useful in identifying overbought and oversold areas. It being a lagging indicator, it follows the price.

Therefore, it is advisable that market participants should make use of other technical indicators like Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and stochastic to confirm any trend. Traders or investors can also consult their financial advisors before buying or selling a stock based on such technical indicators.

The 30-share BSE Sensex crossed the 56,000-mark for the first time on August 18, while the NSE Nifty 50 index was hovering around 16,700-mark at around 10.35 am (IST).