Data showed 40 stocks look strong, as suggested by the moving average convergence divergence, or MACD. Strong trading volumes on many of these counters are adding credence to the emerging trend.
The momentum indicator signalled bullish crossovers — a sign of bullish undertone — on these counters, hinting at possible upsides in the days ahead. The list included pharma names Aurobindo Pharma, Biocon and Pfizer and Nifty names Hindustan Unilever, Hero MotoCorp, UPL and UltraTech Cement.
Equitas Holdings, Snowman Logistics, Bajaj Electricals, Aster DM Healthcare and MEP Infrastructure are some of the other stocks reflecting such bullish sentiment.
The 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 21 stocks are showing bearish trends. They included Glenmark Pharma, Asian Paints, L&T Infotech, Parag Milk Foods, Nestle India, Century Plyboard and FACT.
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, Nifty50 hit a fresh record high of 12,769 before seeing some profit taking. The index was reflecting an extreme overbought situation, pending a correction, analysts said.
Sameet Chavan of Angel Broking said the index saw a gap-up start in last four trading sessions and the ‘Runaway Gaps’ after a decisive breakout from a crucial point indicated strong buying interest.
“But we are close to our target of the ‘Bullish Flag’ pattern i.e. 12,700-12,800. The real question is whether we are going to halt here, or the rally is going to continue further? With a medium-term view, it’s just the beginning of a mega Bull Run and levels at 13,000 and beyond are very much on the cards. For momentum traders, the low-hanging fruit is gone. The immediate price action will not be as smooth as it has been since the last few days,” Chavan said and suggested support for the index in the 12,550-12,475 range.
Aditya Agarwala of YES Securities sees a temporary pause in the uptrend. He said the RSI has reached the extreme overbought territory on the shorter time frame chart and the index has seen negative divergence, which confirms that the ongoing uptrend is reaching maturity and can undergo minor corrections.
A close look at the stock chart of Aurobindo Pharma shows whenever the MACD line has breached above the signal line, the stock has shown uptrend and vice versa. On Wednesday, the scrip was trading 5.97 per cent higher at Rs 806.50 on NSE.
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