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Chart reading: MACD shows 105 stocks are getting ready to rally

NEW DELHI: Even as NSE’s Nifty50 index completed its longest winning streak of calendar 2017 on Monday, momentum indicator moving average convergence divergence, or MACD, signalled upward crossovers for 100 stocks on the bourse.

MACD is known for identifying trend reversals in traded securities.

Among the stocks that saw bullish crossovers were Suzlon Energy, GMR Infrastructure, Ashok Leyland, Sundram Multi Pap, IDFC, Axis Bank, Syndicate Bank, JSW Energy, Nitesh Estates, Ruchi Soya, Jamna Auto, Bombay Dyeing and Manali Petrochem.

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

Other stocks that saw bullish crossovers included SREI Infra, BAG Films, HBL Power, Karnataka Bank, Aksh Optifibre, Hubtown, Punj Lloyd, Lupin and Trident.

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 crosses above the signal line, it gives a bullish signal on the charts, indicating that the price of the security may experience an upward movement, and vice versa.

Chart reading: MACD shows 105 stocks are getting ready to rally

However, MACD alone may not be sufficient to help take an investment call.

Traders should also make use other indicators like Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and Stochastic to confirm any trend.

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

The MACD charts also showed bearish crossovers on 34 counters on NSE, thereby producing a ‘sell’ signal. These stocks included Just Dial, The Ramco Cements, Oberoi Realty, Sono Koyo, Inox Leisure, GE Power and City Union Bank.

Chart reading: MACD shows 105 stocks are getting ready to rally

The equity indices extended their gains for the eighth consecutive session on Monday. The 50-share Nifty50 closed 9.85 points, or 0.09 per cent, higher at 10,399, while the BSE Sensex ended 45.20 points, or 0.13 per cent, up at 33,724.

The index made a small bullish candle on the daily chart on November 27 while the daily MACD indicator formed a bullish crossover. The short-term trend had a positive bias, suggesting that the next leg of rally may be in the offing, analysts said.

The Nifty50 has been forming higher highs for the past five consecutive sessions. It has to continue to hold above 10,350 to witness a rally towards 10,450 and 10,500 levels. On the downside, major support exists at 10,300, said Chandan Taparia of Motilal Oswal Securities said.

On the daily chart, the Nifty50 formed a sizable bullish candle and has closed above previous session’s high indicating positive bias, said Rajesh Palviya, Head Technical & Derivatives Analyst, Axis Securities.

The index bounced from its support from the 20-day SMA (10,330), which is likely to remain a crucial support zone. Daily strength indicators RSI turned positive and was trading above its reference line support showing a bullish bias.

From its current level, if the Nifty50 surpasses the 10,415 mark, then it may move further 10,450 and 10,470 levels in the near term. On the downside, the 10,340 and 10,320 levels are likely to remain key supports, said Palviya.

Understanding MACD

Chart reading: MACD shows 105 stocks are getting ready to rally

A close look at the chart of Ashok Leyland shows whenever the MACD line has crossed above the signal line, the stock has always shown an upward momentum and vice versa.

Shares of the company closed 4.43 per cent higher at Rs 123.65 on November 27.
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