NEW DELHI: Domestic stocks on Tuesday rallied as better-than-expected factory output numbers cheered investors ahead of the US presidential election outcome later in the day.

The rally was broad-based, with at least 50 stocks on NSE sending bullish signals on the daily chart, as suggested by moving average convergence divergence, or MACD, charts.

The momentum indicator signalled bullish crossovers — a sign of bullish undertone — on these counters, hinting at possible upsides in the days ahead. The list includes stocks such as ICICI Bank, Vedanta TVS Motor, Escorts, United Spirits and Exide Industries.

LIC Housing, Bharat Electronics, GIC Housing, Magma Fincorp and Fortis Healthcare are some of the other stocks that are reflecting the bullish sentiment.

UP

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 11 stocks are showing bearish trends. They are Sintex Plastics, HFCL, IDBI Bank, Easter India, Nippon Life AMC, NIIT, Thyrocare Technologies and Uflex.

DOWN11

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 Tuesday, the Nifty50 breached its immediate hurdle of 11,750 with ease and was trading above the psychological mark of 11,800 level.

A hold above the 11,750-11,777 range may push the index towards 11,900 and 12,020 levels, said Chandan Taparia of Motilal Oswal Securities.

“The next couple of sessions would be very crucial to determine the near term trend for the market. As far as the support of 11,500-11,550 is intact, we remain hopeful of a resumption of upmove,” said Sameet Chavan of Angel Broking.

Understanding MACD

A close look at the stock chart of ICICI Bank 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 3.78 per cent higher at Rs 433.25 on NSE.





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