MACD shows signs of cracks in these 25 stocks; should you sell?

NEW DELHI: The bulls continued to remain charged on Dalal Street for the eighth consecutive session on Monday, but momentum indicator Moving Average Convergence Divergence, or MACD, signalled downward crossovers in 25 stocks on the National Stock Exchange (NSE).

The 50-share Nifty settled 47.75 points, or 0.46 per cent, up at 10,528 on Monday, while the 30-share BSE Sensex closed 112 points, or 0.33 per cent, higher at 34,305.

Among the counters that witnessed bearish crossovers in Monday’s session were Reliance Communications, NHPC, Hindustan Petroleum, Crompton Greaves, Tata Communications, Welspun India and Jagran Prakashan.

Some of these stocks have also been witnessing strong trading volumes, adding further credibility to the emerging trend.

Other stocks that saw bearish crossovers included V Mart Retail, Sanghi Industries, Manaksia Steels, Kansai Nerolac Paint, Khadim India and Action Construction.

MACD is a trend-following momentum indicator and 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 reflect ‘buy’ or ‘sell’ opportunities.

When the MACD slips below the signal line, it gives a bearish signal on the charts, indicating that the price of the security may experience a downward movement, and vice-versa.

MACD crossed below signal (3)
However, the MACD alone may not be sufficient to help take an investment call.

Market participants should make use of other indicators such as Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and Stochastic to confirm such trends.

Retail investors should consult financial advisers before buying or selling a stock based on such technical indicators.

MACD charts also showed bullish crossovers in seven stocks on NSE, which meant a ‘buy’ signal.

They included Kwality, KPIT Technologies, Grasim Industries, Eris Lifesciences, Johnson Controls- Hitachi Air Conditioning India, Dalmia Bharat and Eurotex Industries.
MACD crossed above signal (4)
Nifty has been making higher highs for the past 11 sessions. It formed a strong bullish candle on the charts, indicating further strength going ahead.

“Chart patterns suggest if Nifty trades above 10,540, it is likely to climb towards 10,580 and 10,610 levels. On the downside, immediate support exists around the 10,500 level. The index is sustaining above its 20-day, 50-day and 100-day SMAs, which indicate bullish sentiments,” said Rajesh Palviya, Head – Technical & Derivatives Analyst, Axis Securities.

Chandan Taparia, Derivatives and Technical Analyst, Motilal Oswal Financial Services, said: “As long as the Nifty50 holds above 10,480, it can extend gains towards 10,580 and then 10,630 levels. On the downside, supports are seen at 10,480, and then 10,440 levels.”

Understanding MACD

Cera Sanitaryware
A close look at the chart of Cera Sanitaryware shows whenever the MACD line has crossed below the signal line, the stock has shown downward momentum and vice versa.

Shares of the company closed 1.74 per cent down at Rs 3,235 on April 16, 2018

Source: Economic Times