Chart reading: MACD shows nearly 70 stocks are ready for a big rally

NEW DELHI: The Nifty50 surpassed the psychologically important 9,300 level for the first time on Tuesday, with momentum indicator Moving Average Convergence Divergence, or MACD, signalling that 69 stocks have witnessed an upward crossover or bullish crossover on the BSE, indicating that they have begun an upward journey.

The stocks that witnessed bullish crossover include Suzlon Energy, Punjab National Bank, Mahindra & Mahindra, Allahabad Bank, Kaveri Seed Company, Tata Communications, Praj Industries, Hero MotoCorp, Godrej Consumer Products, United Spirits, Capri Global and others (see table).
Some of these counters have also been witnessing strong volumes, adding further credibility to the emerging trend.

Andhra Sugars, Akzo Nobel, JK Cement, PVR, Mukta Arts, UltraTech Cement and Colgate-Palmolive are among the stocks that witnessed bullish crossover on Tuesday.

PVR and Mukta Arts are already hogging limelight this week ahead of the release of blockbuster movie Baahubali 2: The Conclusion later this week.

The MACD is a trend-following momentum indicator which shows the relationship between two moving averages. MACD is the difference between the 26-day and 12-day exponential moving averages. A 9-day exponential moving average, called the ‘signal’ line, is plotted on top of the MACD to reflect ‘buy’ or ‘sell’ opportunities. A ‘buy’ signal occurs when the MACD rises above its signal line and vice-versa.

In technical analysis, the MACD indicator alone may not be sufficient to help decide an investment call, just the way a fundamental analyst cannot give a ‘buy’ or ‘sell’ call using a single ratio.

Traders should make use of other indicators such as Fibonacci Series, RSI, candlestick patterns, Bollinger Bands and stochastic to confirm any trend.

It is advisable to consult a financial expert before buying or selling a stock based on such technical indicators.

The Nifty50 hit all-time high of 9,309 on Tuesday and settled 0.96 per cent higher at 9,306. Stewart & Mackertich Wealth Management said the fact that the Nifty50 ended the previous session with a bullish Marubozu candle above the resistance of 9,280 is a sign of further strength, which may take the index towards 9,340 and thereafter 9,380 levels.

“On the Nifty chart, the hourly RSI is rising steeply and approaching the overbought zone. This suggests the positive momentum may continue further towards the 9,340 level. However, investors need to be cautious on this rise. On the down side crucial supports are placed at 9,260 and 9,210 levels,” Stewart & Mackertich Wealth Management said in a note.



Understanding MACD
A close look at the chart of PVR shows whenever the MACD line has crossed above the signal line, the stock has always shown an upward momentum.

A similar crossover was recorded on Tuesday when the Nifty50 hit its new all-time high.