Momentum Play! 28 stocks in BSE 500 records positive crossover on MACD charts; time to buy?

Indian market remained in the grip of bears throughout the week, pushing the S&P BSE Sensex below 60,000, while the Nifty50 also broke below 17,700 levels on Thursday, but there are nearly 30 stocks that saw positive crossover on the MACD charts.
 

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There are about 28 stocks in the S&P BSE 500 index that witnessed positive crossover on the Moving average convergence divergence (MACD), according to data collated from Trendlyne.

MACD is a trend-following momentum indicator. When the MACD (Moving Average Convergence Divergence) rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. When the MACD moves below the signal line it indicates a bearish signal.

“A bullish signal is present when the MACD line crosses above the signal line and is below the zero line. Likewise, a bearish signal is present when the MACD line crosses below the signal line and is above the zero line,” Mehul Kothari, AVP – Technical Research at AnandRathi, said.

The MACD indicator is made up of three parts. The first one is the MACD line, which is the difference between the two EMAs.

The MACD line is a faster line, and the second one is the signal line that is usually a 9 period EMA of the MACD line and it is the slower line.

And, the third one is The Zero line. The MACD lines fluctuate above and below a zero line, giving the MACD the qualities of an oscillator.

A positive signal generated at a time when benchmark indices are under selling pressure suggests that there is momentum in these stocks, and investors who plan to go long can shortlist stocks based on their risk profile, recommend experts.

“One can consider the buy crossover for bullish sentiment but that should not be the only observation to build positions. One can re-confirm the crossover with other buy signals or some candlestick patterns. The Moving Average Convergence/Divergence (MACD) is an effective tool for trending markets,” suggests Kothari.

What should investors do?

Stocks which have shown positive crossover suggests that there is momentum in these stocks, but MACD should not be used in isolation and traders should deploy other technical parameters to made buy or sell decision.

“No technical parameter relating to Technical analysis should be used in isolation. As often buy and sell signals get whipsawed traders are advised to check the historical success rate of MACD or any other indicator while making buy or sell decisions,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, said.

“Moreover, these technical indicators often proved to be laggards and should avoid if MACD buy signal is generated after a bigger upswing. Always it is better to use multiple technical parameters and decision about buy/sell should be arrived at only when the majority of technical parameters point to one thing. Else it should be disregarded,” he said.

(Disclaimer: The views/suggestions/advices expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)