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At the time when benchmark equity indices BSE Sensex and NSE Nifty traded lower in the early trade on Wednesday, the momentum indicator Moving Average Convergence Divergence (MACD) is signalling bearish crossover on 25 counters on the NSE. Tata Motors, IRCTC, Birlasoft, Brigade Enterprises, Gabriel India, L&T Infotech, Bajaj Finserv, Eicher Motors, V-Guard Industries, Apcotex Industries, Majesco, Quess Corp, Palred Technologies, Mastek, RPSG Ventures, Page Industries, BF Investment, Vishnu Chemicals, Ganges Securities, Hitech Corporation and Pidilite 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 REC, Bank of India, Reliance Industries, Hindustan Copper, Rain Industries, Orient Cement, AU Small Finance Bank, Asian Granito and Geojit Financial Services are among 36 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 traded 386 points down at 59280 at around 10 am (IST), while the 50-share Nifty index was down 97 points, or 0.55%, at 17,652.