Stock Market

7 Nifty members among 80 stocks headed for a big drop, shows MACD

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NEW DELHI: Market breadth is depleting, and the benchmark indices are making lower highs and lower lows, suggesting that supports are shifting lower in the runup to the Union Budget. As weakness grows, more and more stocks are looking weak on the technical charts. As such, 80 stocks on NSE appear to be readying for a correction in the coming days, as suggested by momentum indicator moving average convergence divergence, or MACD.

The list includes at least seven Nifty stocks. The technical indicator has signalled a downward crossover, meaning bearishness, on these counters.

This, coupled with the fact that many of the counters have also been witnessing strong trading volumes of late, adds credibility to the emerging trend. Vedanta, Sun Pharma, Hindalco Industries, Cipla, Bajaj Finance, Titan Company and BPCL are among the Nifty50 stocks that witnessed downward crossover of late, signalling weakness on the charts.

Other stocks in this list included Indraprastha Gas, Hexaware Technologies, Rolta India, Infibeam Avenues, NIIT, Punj Lloyd and Amara Raja Batteries. “Last two days have not been good for our market, as there was a pause to the recent optimism.

Index-wise, no major damage has been done, but if we look at some of the individual stocks, they have certainly taken a brutal knock,” said Sameet Chavan of Angel Broking. The MACD is known for signalling trend reversal 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 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. Meanwhile, eight stocks showed bearish crossovers on the daily charts, sending out bullish signals.

They included NMDC, Voltas, Uttam Galva Steels, Thyrocare Technologies, Raj Television Network and Johnson Controls. 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' call using a single valuation ratio. 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. As for Nifty50, the daily Bollinger Bands have started an expansion after a phase of contraction, thus assisting the price action on the way down.

“The internal structure i.e.

the hourly chart, showed a fall is developing as an Impulse structure, which is a typical characteristic of a deeper fall,” said Gaurav Ratnaparkhi of Sharekhan. Chavan says if Nifty50 stays below 10,675 level for some time, it would see selling pressure and test sub-10,600 levels. UNDERSTANDING MACDA close look at the stock chart of Vedanta shows whenever the MACD line breached below the signal line, the stock tended to show a downward momentum and vice versa. On Tuesday, the scrip traded 0.08 per cent lower at Rs 191.30.




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