Seventy seven of such stocks looked strong on momentum indicator Moving Average Convergence Divergence or MACD.
The indicator signalled bullish crossovers — a sign of bullish undertone — on these 77 counters, hinting at possible upsides in the days ahead. The list included Sun Pharma, India Cements JSW Energy, India Cements and Firstsource Solution. These stocks gained 4-5 per cent so far on Thursday.
Hikal, Jain Irrigation, Usha Martin, NHPC, Caplin Point, SJVN, SRF and Mastekl are some other stocks that looked strong on the MACD indicator.
MACD is known for signalling trend reversals in traded securities or indices. It is the difference between the 26- 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.
Jain Irrigation, NHPC, ICICI Prudential Life and SRF were also among the stocks sending out bullish signals.
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 eight stocks are showing bearish trends, including Venus Remedies, Ajanta Pharma, Inox Wind, Aurionpro Solutions and Ducon Infratech.
Asso Alcohols, Ducon Infratech and Control Print were among the eight stocks sending out bearish signals.
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 (e.g. 5-day and 12-day), 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 was trading above the 14,700 level.
“The bulls need to surpass the resistances of 14,870 and 15,050 for building a greater confidence on this leg of upmove. If we look at charts, the supports for the index are placed around 14,600 and 14,300. Until we surpass these levels on either side, it is prudent to trade with a stock specific approach and avoid taking undue risks as we even have a long weekend ahead. Overall, it was a remarkable financial year 2020-21 and we wish for a profitable new financial year for all traders and investors,” said Sameet Chavan of Angel Broking.
Here’s what the Sun Pharma chart looks like.
A close look at the stock chart of Sun Pharma shows whenever the MACD line has breached above the signal line, the stock has shown uptrend and vice versa.