Sensex, Nifty at record high levels; but these stocks are giving 'sell' signal on charts
When 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
At the time when benchmark equity indices are hovering at their record high levels, the momentum indicator Moving Average Convergence Divergence (MACD) is signalling bearish crossover on 44 counters on the NSE.
Bank of Baroda, Bajaj Finance, Jammu & Kashmir Bank, Indian Bank, Mahindra & Mahindra, Future Enterprises, Thirumalai Chemicals, Gati, OnMobile Global, Rico Auto, Goodluck India and CCL Products were stocks which witnessed bearish crossover.
What is MACD?
It is a momentum oscillator which is developed by Gerald Appel. By far, it remains the most simple and effective momentum indicators available. MACD is a lagging indicator and is made using two exponential moving averages.
Going with textbooks, it is the difference between the 12-day and 26-day exponential moving averages (EMA). A nine-day exponential moving average, called the ‘signal’ line, is plotted on top of the MACD to reflect ‘buy’ or ‘sell’ opportunities.
Calculation
MACD Line = (12-Day EMA minus 26-Day EMA)
Signal Line = (9-Day EMA of MACD Line)
Signal Line crossovers are the most basic interpretation of MACD indicators.
Interpretation
When 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. On the other hand, a bearish crossover occurs when the MACD crosses below the signal line. At present, stocks like JBF Industries, Websol Energy, Vishwaraj Sugar, Apex Frozen Foods, Godrej Agrovet, Pearl Global Industries, GlaxoSmithkline, Pearl Global, Nestle India and TVS Srichakra are also among 43 stocks that are trading below the signal line.
Going with technical analysts, MACD is an unbounded indicator and therefore it is not particularly useful in identifying overbought and oversold areas. It being a lagging indicator, it follows the price.
Therefore, it is advisable that market participants should make use of other technical indicators like Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and stochastic to confirm any trend. Traders or investors can also consult their financial advisors before buying or selling a stock based on such technical indicators.
The BSE Sensex and NSE Nifty settled at a record closing high of 52,328.51 and 15,751.65, respectively, on June 7.