The momentum indicator signalled bullish crossovers — a sign of bullish undertone — on these counters, hinting at possible upside in the days ahead.
Shutterstock.comThe 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.
NEW DELHI: The bulls on Dalal Street looked tried on Tuesday even as they tried to push the latest round of winning streak into a ninth session. Yet, there were at least two dozen stocks that looked set to log further gains, as suggested by the moving average convergence divergence, or MACD, charts.
The momentum indicator signalled bullish crossovers — a sign of bullish undertone — on these counters, hinting at possible upside in the days ahead.
The list included PNB, Patel Engineering, Gayatri Projects, India Cements, L&T Technology, Orient Cement, Rane Holdings and Sonata Software. Star Cement, HEG, IFB Industries JMC Projects, Bajaj Holdings, Rane Engine Valve, Sundaram Brake and Whirlpool of India also showed strong momentum on the technical indicator. At the time of writing of this report, all these stocks, barring two, were trading higher, with Rane Holdings, Rane Engine, Apollo Sindoori and Patel Engineering up 9-17 per cent.
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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. As many as 25 stocks showed bearish trends. They included Motherson Sumi, TVS Motor, Cholamandalam Investment, Welspun India, Siemens, Prestige Estates, Natco Pharma, KRBL and MCX.
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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, one 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, Nifty50 ruled near the 11,980 mark after having breached the 12,000 level intraday in the previous session.
"We had a remarkable rally after testing the 200-day SMA around 10,800 level. Yesterday, for the first time in last few sessions, the bulls looked a bit tentative at higher levels. The 11,867-11,800 range should now be treated as a support zone, whereas one needs to watch the 12,000-12,050 area on the higher side. We would like to draw attention towards the movement of the Nifty Midcap index. This space saw decent profit booking on Monday and is the only factor missing to make the recent rally as a healthy one," said Sameet Chavan of Angel Broking.
8 stocks that analysts say can offer solid returns in 3-5 weeks
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Picking a stock can be tricky, especially when the market has seen a non-stop bull ride for over a week and valuations seem pricey. Here is a selection of eight hand-picked stocks which can generate solid returns in the next few weeks.
Axis Bank Ltd | BUY | Target Price: Rs 515
Axis Bank has witnessed a sharp upside bounce in the last couple of weeks following a sharp decline last month. After forming higher tops and higher bottoms in a sequence, the stock has formed a new higher bottom at Rs 400. Hence, one may expect it to move up further. Volumes have started to increase with an up move in the stock price and the weekly 14-period Relative Strength Index or RSI gives a positive indication. The analyst recommends traders to buy Axis Bank with a target of Rs 515 in the next 3-4 weeks and place a stop loss at Rs 435.
Analyst: Nagaraj Shetti, Technical Research Analyst, HDFC Securities
Larsen & Toubro Ltd | BUY | Target Price: Rs 980
L&T's stock price witnessed an upside bounce in the last week with the formation of a higher low. Signalling a near-term bottom reversal at the low of Rs 843, a positive reversal type candle has been formed in the last couple of weeks near its support level. The analyst says that volumes and RSI indicates a positive outlook for the stock, and therefore, one may buy L&T for a target of Rs 980 in the next 3-5 weeks. A stop loss is recommended at Rs 850.
Analyst: Nagaraj Shetti, Technical Research Analyst, HDFC Securities
Canara Bank | BUY | Target Price: Rs 103
This counter is moving almost flat within a narrow range of Rs 87-93 for the last couple of trading sessions. Sustenance above Rs 87 can unleash a fresh leg of upswing which can initially expand up to Rs 103. As the risk-reward ratio looks very favourable, the analyst says one can buy in anticipation of a breakout from the congestion zone with a target of Rs 103. He suggests a stop loss at Rs 87.
This counter appears to be on a strong up trend as it recouped all intraday losses before signing off Friday's session with a strong gain of almost 10 per cent from an intraday low of Rs 333. Interestingly, this recovery occurred after testing the erstwhile upper boundary of the 45-day old ascending channel from which it registered a breakout couple of sessions ago. The analyst advises positional traders to adopt a two-pronged strategy of buying now and adding further on declines into the zone of Rs 340-345 as this counter is high on momentum. A stop loss for the trade is suggested at Rs 332.
If the bulls fail to take the index beyond the resistance zone at 11,970-12,000, it will trigger fresh profit booking, said Aditya Agarwala of YES Securities. "In such a case, the index will fall towards the 11,800-11,750 range. However, a sustained trade above 12,000 level will resume the uptrend and take Nifty higher to 12,100-12,250 levels,” he said.
Understanding MACD
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A close look at the chart of India Cements showed whenever the MACD line has breached above the signal line, the stock has shown uptrend and vice versa. On Tuesday, the scrip traded 3.57 per cent higher at Rs 120.45.
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