Stocks to buy: Four Nifty50 stocks among 71 that look set to rally, suggests MACD

NEW DELHI: Nifty50’s recovery from Thursday’s selloff has lifted the market mood, with at least 71 stocks on NSE throwing up bullish signals, 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 included Nifty50 names such as NTPC, HDFC Life, Asian Paints and BPCL.

Dabur India, NHPC, Godrej Properties, Orient Cement, Emami, Avenue Supermarts, Cyient, Ircon International and DCB Bank are some other stocks reflecting bullish sentiment. Somany Ceramics, Praj Industries, FACT, PC Jeweller, Tata Coffee and Star Cement are other stocks looking strong on technical charts.

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 16 stocks are showing bearish trends. They are Grasim Industries, Bajaj Auto, Coforge, Shalby, Den Networks, JB Chemicals, TeamLease Services and Godrej Agrovet.

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, Nifty50 reclaimed the 11,900-mark and was trading at 11,910.55, up 37.50 points or 0.32 per cent.

Analysts said that the index has not seen a follow-up fall following Thursday’s selloff, which is a sign of relief. But they feel that the index remains vulnerable to selling pressure. The range of 11,900-926 could pose as immediate resistance for the index, they said. The index has so far hit a high of 11,924.30 during the day.

Sameet Chavan of Angel Broking said Nifty50 is back to the safer zone and the immediate support base has now shifted higher at 11,780-11,820.

“On the higher side, resistance is seen around the 12,000 mark and once this is taken out, our market would gear up for the next leg of the rally. Traders are advised to trade with a positive bias and look for such sectors which are in momentum and are providing good trading opportunities,” Chavan said.

Understanding MACD

A close look at the stock chart of NTPC shows whenever the MACD line has breached above the Signal Line, the stock has shown an uptrend and vice versa. On Tuesday, the scrip was trading 0.8 per cent down at Rs 80.95 on NSE.

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