The momentum indicator has signalled bearish crossovers on these stocks — a sign of bearish undertone — hinting at possible downsides in the days ahead.
The list includes Suzlon Energy, Union Bank of India, India Overseas Bank, Redington India, United Spirits, MOIL and PNB Housing Finance.
Others included Power Grid, Indian Energy Exchange, Narayana Hrudayalaya, ZEEL, Vedanta, Adani Ports and Indiabulls Housing. These stocks were down up to 7 per cent in trade so far.
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 six stocks were showing bullish trends. They included Sintex Plastics, Trent, Ganesh Housing, IFB Industries, RPP Infra Projects and Tijaria Polypipes.
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 Friday, the index broke below its immediate support of 17,170 and was quoting at 17,050.80, down 197.60 points or 1.15 per cent.
Ashika Institutional Equities said that violation of the 17,150-17,050 range might result in deeper price cuts.
Sameet Chavan of Angel One said that 17,200 had been a key support level.
“The recent downturn will certainly resume and we may see sub-17,000 territory again. The levels of 17,350-174,00 would be seen as immediate hurdles. Banking becomes the key component here, which is likely to dictate the immediate trend,” he said.
A close look at the stock chart of Indiabulls Housing Finance shows whenever the MACD line has breached below the signal line, the stock has shown a downtrend and vice versa.