The momentum indicator signalled bullish crossovers — a sign of bullish undertone — in 24 counters, hinting at possible upsides in the days ahead.
The list included IT majors TCS, Infosys, Wipro and HCL Technologies, besides pharma names Lupin, Ipca Laboratories, Laurus Labs and Vivimed Labs. Zee Entertainment, Torrent Power, Infibeam Avenues, CG Power, Abbott India, Dalmia Bharat Sugar and Kitex Garments were among other stocks sending out bullish signals on their daily charts.
MACD is known for signalling 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 chart 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.
There are 14 stocks showing bearish trends. They included Ashok Leyland, Axis Bank, TVS Motor, City Union Bank, Salasar Technologies and Deccan Cements, 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 the MACD by using shorter-term moving averages for computing MACD (e.g. 5-day and 12-day moving averages), the lag effect will still be there. 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, Nifty50 traded 1 per cent higher near the 13,050 mark.
“On the daily time frame, Nifty continues to display a very strong trend, as the ADX remains at elevated levels and the MACD is in the ‘buy’ mode. When Nifty is in a trend, avoid selling short for the time being. A break above the 13,000 level should propel the index higher towards 13,084 level. There is a strong likelihood that Nifty will trade higher going into the last three days of the F&O series,” said independent analyst Manish Shah.
Shrikant Chouhan of Kotak Securities advised traders to go long on Nifty50 above 12,970 level for targets of 13,100 and 13,180 levels. “Below 12,800 level, the index would gradually fall to 12600 level,” he said.
A close look at the stock chart of TCS shows whenever the MACD line has breached above the signal line, the stock has shown an uptrend and vice versa. On Tuesday, the scrip traded at Rs 2,736, up 0.43 per cent.