NEW DELHI: As the benchmark indices staged a recovery on Thursday, at least 10 stocks on NSE sent out 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. Many of these stocks have also been witnessing strong trading volumes of late, lending credence to the emerging trend.
The list includes RIL, which is believed to be in the process of selling a 15 per cent stake in its retail business for Rs 63,000 crore. The company’s retail venture raised Rs 7,500 crore on Wednesday from Silver Lake for a 1.75 per cent stake.
BPCL, a privatisation candidate, is also sending out a bullish signal on the momentum indicator. The government is looking to sell its entire 52.98 per cent stake in BPCL and the firm’s 61.7 per cent owned subsidiary, Numaligarh Refinery, to another state-owned enterprise.
Wipro, which has recently entered a multi-year global agreement with Italian fim Marelli for automotive engineering services, also looks strong on the momentum indicator.
HDFC Life Insurance, Sequent Scientific, Pidilite Industries, Indo Count Ind, Saregama India, Gallant Metal and Coral India Finance are other stocks showing similar bullish sentiment.
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 also showed six stocks are showing bearish trends. They include TTK Prestige, Astral Poly Technik, TV Today Network, Wendt India, Orient Press and Shiva Texyarn.
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 Thursday, the Nifty50 topped the 11,350 mark.
“While the index has opened with a marginal gap up, we need to see if it can get past 11,450 on a closing basis. That is a key resistance level. Until then, the bearish sentiment continues and we could drop back to the 11,200 levels and lower,” said Manish Hathiramani, technical analyst at Deen Dayal Investments.
“Although we have been advising a sign of caution since last few days, one should now look for stock-specific buying opportunities from a momentum trading perspective and avoid forming short positions. The immediate resistances are around 11,360 and 11,450,” said Sameet CHavan, Angel Broking.
A close look at the stock chart of RIL shows whenever the MACD line has breached above the signal line, the stock has shown upward momentum and vice versa. On Thursday, the scrip was trading 2.44 per cent higher at Rs 2,214 on NSE.