ITC, Asian Paints, Mishra Dhatu among 137 stocks set to rally, suggests MACD

NEW DELHI: As Nifty50 extended gains into the fourth day on Tuesday, at least 137 stocks on NSE signalled bullish signals on the daily chart, as suggested by the moving average convergence divergence, or MACD.

The momentum indicator signalled bullish crossovers — a sign of bullish undertone — on these counters, hinting at possible upsides in the days ahead.

The list included ITC, Asian Paints, Lupin, Bajaj Finance, Inox Leisure, IDFC First Bank, Motherson Sumi, Laurus Labs and Nippon Life AMC.


Many PSU stocks such as State Bank of India, ONGC, NMDC, GMDC, HUDCO, Ircon International, Indian Bank and Mishra Dhatu, among others, also sent out bullish signals.

Tata Group stocks such as Indian Hotels, Tata Steel, Tata Steel BSL, Tata Elxsi and Tata Metaliks as well as Adani group stocks Adani Power and Adani Transmission also found themselves on the list.

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 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.

Eight stocks showed bearish trends. They included Escorts, Info Edge, Nectar Lifesciences, Surya Roshni, RPG Life Sciences, Thangamayil Jewellery, Ausom Enterprises and AGC Networks.

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 MACD's sensitivity by using shorter moving averages for computing MACD (e.g. 5-day and 12-day moving averages), the lag effect will still be there. Hence, 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, the Nifty50 topped 11,600 mark after breaching the 11,500 mark in the previous session.

"Nifty has seen a V-shaped recovery from the recent low of 10,800, which was its key support at the 200-day moving average. The recent leg of correction in the later half of September started from the 11,580-11,620 zone and the index is now back in that resistance zone. There could be a pause in the ongoing momentum. It is advisable for traders to lighten up some longs near this resistance zone. Rather than the index, taking a sector- or stock-specific approach now could be a better strategy," said Sameet Chavan of Angel Securities.

Independent Analyst Mahish Shah said the index has a key resistance at 11,660. "The oscillators have started to flag a possible rally in the coming few days. MACD has moved into a buy mode with the crossover near the zero line. The directional movement index has also given a buy signal," he said.

Understanding MACD

A close look at the stock chart of Lupin shows whenever the MACD line has breached above the signal line, the stock has shown uptrend and vice versa. On Tuesday, the scrip was trading at Rs 1,041.95, up 0.36 per cent.