Tata Power, BHEL, IGL among 100 stocks sending buy signals on MACD indicator

NEW DELHI: Even as the market was trading lower for the fifth straight day on Tuesday, at least 100 stocks on NSE, mostly midcap and smallcaps, were sending ‘buy’ signals on MACD or moving average convergence divergence.

In total, the momentum indicator has signalled bullish crossovers on 100 stocks — a sign of bullish undertone — hinting at possible upsides in the days ahead.

The list included city gas distributors such as IGL and Mahanagar Gas, power producer Tata Power, heavy electrical equipment maker BHEL, broadcast satellite service provider Dish TV, NBFC Manappuram Finance and refiner MRPL.

The list also includes Ujjivan SFB, Nagarjuna Fertilizer, Siti Networks, Granules India, Subex, RCF, Triveni Engineering, NDTV, EID Parry, Aban Offshore and KM Sugar Mills.

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.

Data showed eight stocks were showing bearish trends. They included Eveready Industries, Orient Bell, Shree Ram Proteins, Butterfly Gandhimathi Appliances, MM forgings, Rushil Decor, Timken India and Technocraft Industries.

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 MACD 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 Wednesday, the Nifty50 was trading below 17,800.

“The inability to float above 15,850 early in the day will deflate the momentum and force Nifty50 to consolidate in the 15,750-15,200 band in coming days,” said Anand James of Geojit Financial Services.

“Nifty may find support around 15,600 while 16,200 will act as resistance on the upside,” said IIFL Securities.

Understanding MACD

A close look at the stock chart of Tata Power shows whenever the MACD line has breached above the ‘signal line’, the stock has shown an uptrend and vice versa.

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