Analysts said any bounce at this stage may be shallow and traders must exercise caution.
Getty ImagesThe MACD is known for signalling trend reversal in a traded security or index.
NEW DELHI: A small pullback in the benchmark equity indices in Monday’s trade following three days of battering raised hopes of a possible recovery, but technical charts suggested it might just be a dead-cat bounce.
Analysts said any bounce at this stage may be shallow and traders must exercise caution.
But all is not that gloomy.
There are a handful stocks that look strong on the charts, as suggested by momentum indicator moving average convergence divergence, or MACD.
The technical indicator signalled upward crossover, which is a bullish signal, for at least 15 stocks, hinting at possible upsides for these stocks.
Some of these counters have also been witnessing strong trading volumes of late, adding further credibility to the emerging trend.
Among the stocks that signalled such bullishness are Titan Company, Talwalkars Better Value Fitness, Bhansali Engineering Polymers, Aster DM Healthcare and Gujarat Pipavav Port.
The MACD is known for signalling trend reversal in a traded security or index.
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 reflect ‘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.
Among the stocks that witnessed this bearishness were metals majors Vedanta and Hindalco Industries, natural gas transmission company Gujarat State Petronet, maker of defence products Astra Microwave and AC generator TD Power Systems.
Others included Cyient, Vikas Ecotech, Indian Terrain and Kilitch Drugs.
That said, the MACD indicator should not be seen in isolation and it may not be sufficient to take a trading call, just the way a fundamental analyst cannot give a ‘buy’ or ‘sell’ call using a single valuation ratio.
Market veterans say the MACD alone may not be good enough to help take an investment call. 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 Nifty50, Gaurav Ratnaparkhi, Senior Technical Analyst at Sharekhan, said the impulse structure looks incomplete on the way down on the daily chart. Thus, any bounce is likely to be a shallow one.
The Nifty50 is on the verge of seeing a bounce from the lows, but the sustainability of the upmove is doubtful, said Nagaraj Shetti, Technical Research Analyst at HDFC Securities.
Shetti said the 10,500-550 zone is going to be a strong overhead resistance for the index. The Nifty50 has completed an impulse on the hourly chart.
Mazhar Mohammad of Chartviewindia.in, meanwhile, said the intraday recovery appeared to be on the strength of a few largecap stocks, which attracted value buying at lower levels.
“Going forward, pullbacks shall remain vulnerable to unexpected selling pressure, as multiple hurdles are placed on the way to the 11,000 mark. In case this pullback materialises, the first hurdle shall be at 10,547 level,” Mohammad said.
Understanding MACD
A close look at the stock chart Titan Company shows whenever the MACD line has breached below the signal line, the stock tended to show an downward momentum and vice versa.
On Monday, the stock rose 2.7 per cent to close at Rs 813.45 on NSE.
Getty Images
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