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Posts tagged ‘MACD’

More Stock Market Interim Rally Ahead?

By: Andre_Gratian

Current Position of the Market

SPX: Very Long-term trend – The very-long-term cycles are down and, if   they make their lows when expected (after this bull market is over) there will   be another steep and prolonged decline into late 2014. It is probable, however,   that the steep correction of 2007-2009 will have curtailed the full downward   pressure potential of the 120-yr cycle.

SPX: Intermediate trend – Correction

Market Overview

The market correction which started in early April is not over and, based on   cycles, may run into late-July/early-August before it is. Six days ago, the SPX   completed a phase projection and has been consolidating since. From a cyclical   viewpoint, there are two possible scenarios for what lies directly ahead: there   is a cycle cluster due in mid-June which could turn out to be a high or a low   point for the market. I lean toward its being a high because of the more   dominant cycles that have recently bottomed, and are about to bottom in the next   few days, and which will be setting the trend for the following couple of weeks.   (If there is enough upward pressure from the longer-term cycle which has already   made its low, it is possible that SPX might even start extending its uptrend   past the recent highs right away.)

If this is the case, the current consolidation should end with an extension   of the interim rally to about 1340 or higher. It will be followed by the final   leg of the correction into the time frame mentioned above, and could reach as   low as 1235-1245 before it ends. If this turns out to be the completion of wave   4 from 1075, the index should then start wave 5 and rise to a new high before   completing it.

This forecast is a guesstimate based on cycles and structure. It will be   refined or modified, if need be, as the market trend evolves.

Chart analysis

On the Daily Chart, we see that SPX is now traveling in the blue   channel which defines its current trend. If the target which I have set for the   low of the correction is valid, the decline should end outside of the channel   and find support on the lower green line, just as it did on the upper one. For   now, the 200-DMA is also adding temporary support. It has already been violated,   but it does not matter even if it is decisively broken, providing that prices   can move back above it as they did during last year’s August to December   consolidation.

On the P&F chart, there were two separate phases of distribution which   formed at the SPX top. The shortest one, taken across 1411, gave us a count to   1304 which was slightly exceeded as the decline ran its course.

There is another count that could be taken at the 1397 level that has stored   enough negative energy to take prices down as low as 1235, although the likely   bottoming range should be somewhere between 1235 and 1255. I’ll be able to   refine this count as soon as the current consolidation is over.

full article at source: http://www.marketoracle.co.uk/Article34887.html

The CCI developed some divergence at the recent low, and this argues for an   extension of the interim rally before the correction continues. The MACD has no   such divergence, only slight deceleration. This suggests that lower prices will   be seen before the correction is over.

Bank of America Corp share price

NEW YORK (MarketWatch) — Just because some high-profile investors have sold Bank of America Corp. shares recently doesn’t mean the average investor should follow. The charts suggest the stock might have some short-term lift.

The fund run by famed billionaire investor John Paulson disclosed it reduced its B. of A. /quotes/comstock/13*!bac/quotes/nls/bac (BAC 14.81, -0.03, -0.20%)  holdings by 10% during the fourth quarter, while Warren Buffett’s Berkshire Hathaway /quotes/comstock/13*!brk.a/quotes/nls/brk.a (BRK.A 127,440, +165.00, +0.13%)   /quotes/comstock/13*!brk.b/quotes/nls/brk.b (BRK.B 84.93, -0.03, -0.04%)  sold its entire stake.

Before investors blindly follow their Wall Street heroes, keep in mind the sales were completed as of Dec. 31, when the stock closed at $13.34. It soared 6.4% the very next session, and the low so far this year has been $13.40.

In addition, the stock’s technicals are behaving like they did just prior to some significant upward spikes over the past couple of years.

The moving average convergence-divergence indicator, known as the MACD, is a trend-following momentum indicator that oscillates around zero. It is constructed using two exponential moving averages — the MACD line and the MACD signal line.

The indicator produced a “buy” signal over the last week when the MACD line crossed over the MACD signal line. More importantly, this crossover occurred with both lines north of zero.

Similar positive crossovers occurred on March 24, 2010, Oct. 9, 2009, and on the 15th and 28th of July 2009. After those crossovers, B. of A. spiked as much as 13% in less than three weeks, 9.1% in a week and 30% in less than two weeks, respectively.

B. of A.’s technical makeup looks a lot more like it did in July 2009 because of the recent appearance of a “golden cross,” which is when the 50-day simple moving average crosses above the 200-day simple moving average. The last “golden cross” appeared just before the July 2009 MACD crossovers.

Some investors may be skeptical of a potential technical breakout because short interest dropped 31% in just two weeks to 79 million shares as of Jan. 31 settlement, meaning a lot of short-cover buying has already taken place. But current short-interest levels are similar to those seen at the time of the previous positive MACD crossovers, and are still more than double the lowest levels seen during the bull-market years of 2005 and 2006.

The stock was up 0.2% at $14.87 in afternoon trading Thursday, off an intraday low of $14.73. A potential MACD crossover spike would likely propel the stock through key resistance at the $15.30 to $15.40 level, which includes the January high and the 50% retracement level of the decline from the April 2010 high to the November 2010 low.

Other upside levels to watch include the June high of $16.10 and the gap in the charts between the May 14 high of $16.72 and the May 13 low of $16.85.

So instead of Buffett or Paulson, perhaps short-term investors should follow Appaloosa Management’s David Tepper. He made billions buying bank stocks in 2009, called the stock market’s rally since last September, and raised his stake in B. of A. by 12% during the fourth quarter.

Comment:

I bought BAC at $10.93 and expect the stock to continue  up to about $17.50 (current price is $ 14.81) I am also in Citi and i expect it to go to 6.50 in the coming months

Dow looks strong and should continue to climb the wall of worry ,we could see it reach 13500 -14000 and possible see ne all time highs before we see acorrection of 10%-15%

T

Market Brief for February 2011

 sent in to us by

www.wealthbuilder.ie

Market Brief

16th. February 2011

 The market is at a very interesting juncture. On all my favourite indicators (A/D Line, McClennan Summation, Slow Stochastics, Fast Stochastics and MACD) the current bull run is very much overbought. Given that this highly profitable move has been in place since last September it is logical that we are due a correction, but there is no sign yet of any technical breakdown. If you are not in the market or have been stopped out from positions I would hold my powder dry for the moment as the risk/reward ratio is negative.

Of particular note I would point out that despite indications of slight consumer recovery, inflation creep and mounting tensions in the Middle East the price of oil has remained low. I do not think this situation can long continue. When oil does finally takes off expect a sharp market reaction because the wriggle room available to the FED to hold interest rates low will be seriously diminished. Once interest rate increases commence a new dynamic will enter the scene. If this trend change is not timed to perfection by Mr. Bernanke and friends serious valuation problems could ensue, increasing market instability.

The sovereign debt elephant in the European parlour room has not gone away but has merely learned some social graces since its tantrum last autumn. When Euro rates start their inevitable rise, further pressure will be placed on Euro-zone nations trying to service exploding national debt. Eventually the outcome will have to involve some form of agreed default and rate discount. Without these safety valves the Euro project will remain vulnerable. Current talks in Brussels are beginning to attempt to grasp this possibility. In Ireland, in particular, the outcome is fundamental to the recent IMF/EU bailout plan working. It order to keep Irish economic growth figures on track  the rate of interest agreed in that disastrous package must be brought down from the existing punitive 5.9% level. Ireland goes to the polls the 25th. of the month and the first item on the agenda of Mr. Enda Kenny, the politician expected to win the election, is to renegotiate draw-down rates on European Financial Stabilization Funds. If this endeavour is unsuccessful additional taxes will have to be earmarked for debt repayments, seriously deflating an already stalled Irish economy.  Where Ireland goes the Euro will follow. Success in negotiations for Ireland will mean other Euro stressed countries like Greece, Portugal and Spain will also obtain some relief when issuing new sovereign debt.

In an article in 2008 on contracts for difference I mentioned that if New York physical market makers did not embrace CFD’s and new technological development the survival of the NYSE, as we knew it, could be called into question. I did not think events would move as fast as they have. The buyout of the hallowed NYSE last week by Europeans will see huge changes in the type of trading instruments and platforms being presented to Americans. Order matching and funding technologies are developing fast and it is no longer possible for any group, however powerful, to ignore quantum changes in trading execution. The main liquidity behind this evolution is coming from the off-shore, 18 trillion valued, Euromarket and this is why London (the center of the Eurobond market) is fast becoming the new financial capital of the world.  I anticipate that the next American institution to come under threat will be the Chicago Exchange. This is due to the fact that spread-contracts, instruments that actually have no time expiration, have all but rendered options obsolete.

 Dow Jones Industrial 3 Day Chart:

United States Oil Fund 9 Day Chart:

 Advance Decline Line 3 Day Chart:

 McClennan Summation Index 3 Day Chart:

Comment:

As an Options trader for many years I am inclined to agree with you on the downward trend of the popularity of options and the new spread contracts are a much better tool.

Using options was akin to using blocks of ice or trying to move when the ground under you was moving in the opposite direction.

The overall Dow direction is in my mind climbing the wall of worry and I detect no change or obvious technical breakdown, about a month ago the Transports did take a breather but are now back in a upward direction again. How long this will last nobody can say but everybody is expecting a correction and a 10%-12.5 % would be good for the market.

Personally I believe we will see still have to see the market highs for the year .

Oil sorry to say should be in the $130 a barrel before long and I still expect to see the euro gain on the dollar.

Stocks:

Citi and Bac are still my favourite and currently up approx 30% on invested funds so far this year

Due to the election I am not aggressive in the market place.   

Successful Day Trading Brief

My thanks to Christopher for his latest contribution

as a Trader myself I think this article is a must read and amply covers the dangerous pitfalls lurking inside every trade, a day trader makes.

 Day trading is not the answer to all your financial troubles , but with a good professional guide it could become a gateway to your own financial independence.

I have personally traded the markets now for 10 years and it is only in the last 3 years that I have begun to make money consistently and this is all down to sticking to the rules

Without effort and investment in learning, most of you will lose your money

It makes sense before you dip your toe into something you know nothing about ,you learn something about it first! 

 makes sense to do so?

 

 

Successful Day Trading Brief

Christopher M. Quigley

B.Sc., M.M.I.I. Grad., M.A.

 

Judging from the contents of an increasing number of emails more and more investors are choosing to “actively” trade the market rather than simply “buy and hold” it. In the main, this is due to the fact that in a bear market the latter strategy creates losses that are difficult to accept long term. However another reason is that with limited business opportunity available investors are seeking “income” rather than capital gain from their investments.

Accordingly I set out below some parameters to help these new “traders” avoid the worse pitfalls and hopefully guide them towards the mindset required for long term success.

(This article has some notes from earlier publications for ease of reference).

1.    Start. Markets are rational. The best theory to gain this insight is Dow Theory (see note 1). Learn everything you can about Hamilton’s and Dow’s perceptions and make it part of your investment “macro-view”.

2.    Due to the growing complexity in financial reporting and the opportunity for abuse therein, with its concomitant risk, it may be advisable to trade through exchange traded funds (ETF’) or Contracts for Difference (CFD’s). These funds trade like stocks but offer exposure to equity sectors, commodities, currencies and interest rates. Thus you have better opportunity for diversification with less risk. (If you do not understand CFD’s see note 2 below).

3.    When you enter a position know beforehand your exit point. Always place a sell stop thus limiting your potential loss.

4.    As your profits rise adjust your sell stop upwards thus locking in your profits.

5.    A trading platform offering discount commissions is absolutely vital.

6.    Technical analysis data is vital to judge your entry and exit points. Get a good system that offers “real time” streaming providing one minute, five minute, ten minute and one hour ticker readings in addition to the regular daily timelines. I prefer the five minute screen for active day trading.

7.    Using too many technical indicators creates “paralysis by analysis”. Get to know the indicators that work for you and stick to them. Consistency will bring greater reward. I like MACD (moving average convergence divergence, 10 and 20 DMA’s (daily moving averages) and purchase volume. For price I use the candlestick format rather than the simple line as it gives more information on the market psychology of actual price movement. (See note 3 below).

8.     You must adopt a trading strategy. If you do not have one find one. If you are new to trading use the many simulation packages available online to test and retest your knowledge and approach. Do not start to spend a major part of your capital until you have proven to yourself that you can consistently make good investment decisions in real time. It is better to be losing time rather than time and money. For me the best strategy to successfully day trade is a Momentum Strategy. This strategy highlights only top Growth Stocks with high Price Earnings Ratios. A good BUY indicator is a BULLISH ENGULFING candlestick moving up through a significant DMA on high volume. ideally with a MACD changing from negative to positive. A good SELL indicator is a BEARISH ENGULFING candlestick moving down through a significant DMA, ideally with MACD moving from positive to negative.

9.    The holy grail of trading is patience. If you do not have a trade that has a good

probability to work profitably for you the best place to be is in cash. This is hard to learn but is

absolutely essential.

 

10.     If you think trading is gambling you have missed the point and need to be re-educated. Go back to start and get your thinking rational.

 

Note 1:

Dow Theory

The Dow theory has been around for almost 100 years. Developed by Charles Dow and refined by William Hamilton, many of the ideas put forward by these two men have become axioms of Wall Street.

Background:

Charles Dow developed the Dow theory from his analysis of market price action in the late 19th. Century. Until his death in 1902, Dow was part owner as well as editor of the Wall Street Journal. Even though Charles Dow is credited with initiating Dow theory, it was S.A. Nelson and William Hamilton who later refined the theory into what it is today. In 1932 Robert Rhea further refined the analysis. Rhea studied and deciphered some 252 editorials through which Dow and Hamilton conveyed their thoughts on the market.

Main Assumptions:

1.    Manipulation of the primary trend as not being possible is the primary assumption of the Dow theory. Hamilton also believed that while individual stocks could be influenced it would be virtually impossible to manipulate the market as a whole.

2.    Averages discount everything. This assumption means that the markets reflect all known information. Everything there is to know is already reflected in the markets through price. Price represents the sum total of all the hopes, fears and expectations of all participants. The un-expected will occur, but usually this will affect the short-term trend. The primary trend will remain unaffected. Hamilton noted that sometimes the market would react negatively to good news. For Hamilton the reason was simple: the markets look ahead, this explains the old Wall Street axiom “buy on the rumour and sell on the news”.

Even though the Dow Theory is not meant for short-term trading, it can still add value for traders. Thus no matter what your time frame, it always helps to be able to identify the primary trend. According to Hamilton those who successfully applied the Dow Theory rarely traded on too regular a basis. Hamilton and Dow were not concerned with the risks involved in getting exact tops and bottoms. Their main concern was catching large moves. They advised the close study of the markets on a daily basis, but they also sought to minimise the effects of random movements and recommended concentration on the primary trend.    

Price Movement:

Dow and Hamilton identified three types of price movement for the Dow Jones Industrial and Rail averages:

A.    Primary movements

B.    Secondary movements

C.    Daily fluctuations

A.    Primary moves last from a few months to many years and represent the broad underlying trend of the market.

B.    Secondary or reaction movements last for a few weeks to many months and move counter to the primary trend.

C.    Daily fluctuations can move with or against the primary trend and last from a few hours to a few days, but usually not more than a week.

Primary movements, as mentioned, represent the broad underlying trend. These actions are typically referred to as BULL or BEAR trends. Bull means buying or positive trends and Bear means negative or selling trends. Once the primary trend has been identified, it will remain in effect until proven otherwise. Hamilton believed that the length and the duration of the trend were largely undeterminable. Many traders and investors get hung up on price and time targets. The reality of the situation is that nobody knows where and when the primary trend will end.

The objective of Dow Theory is to utilize what we do know, not to haphazardly guess about what we do not. Through a set of guidelines. Dow Theory enables investors to identify the primary trend and invest accordingly. Trying to predict the length and duration of the trend is an exercise in futility. Success according to Hamilton and Dow is measured by the ability to identify the primary trend and stay with it.

Secondary movements run counter to the primary trend and are reactionary in nature. In a bull market a secondary move is considered a correction. In a bear market, secondary moves are sometimes called reaction rallies. Hamilton characterized secondary moves as a necessary phenomenon to combat excessive speculation. Corrections and counter moves kept speculators in check and added a healthy dose of guess work to market movements. Because of their complexity and deceptive nature,

secondary movements require extra careful study and analysis. He discovered investors often mistake a secondary move as the beginning of a new primary trend.

Daily fluctuations, while important when viewed as a group, can be dangerous and unreliable individually. getting too caught up in the movement of one or two days can lead to hasty decisions that are based on emotion. To invest successfully it is vitally important to keep the whole picture in mind when analysing daily price movements. In general they agreed the study of daily price action can add valuable insight, but only when taken in greater context.

The Three Stages of Primary Bull Markets and Primary Bear Markets.

Hamilton identified three stages to both primary bull and primary bear markets. The stages relate as much to the psychological state of the market as to the movement of prices.

Primary Bull Market

Stage 1.    Accumulation

Hamilton noted that the first stage of a bull market was largely indistinguishable from the last reaction rally in a bear market. Pessimism, which was excessive at the end of the bear market, still reigns at the beginning of a bull market. In the first stage of a bull market, stocks begin to find a bottom and quietly firm up. After the first leg peaks and starts to head down, the bears come out proclaiming that the bear market is not over. It is at this stage that careful analysis is warranted to determine if the decline is a secondary movement. If is a secondary move, then the low forms above the previous low, a quiet period will ensue as the market firms and then an advance will begin. When the previous peak is surpassed, the beginning of the second leg and a primary bull will be confirmed.

Stage 2.    Movement With Strength

The second stage of a primary bull market is usually the longest, and sees the largest advance in prices. It is a period marked by improving business conditions and increased valuations in stocks. This is considered the easiest stage to make profit as participation is broad and the trend followers begin to participate.

Stage 3.    Excess

Marked by excess speculation and the appearance of inflationary pressures. During the third and final stage, the public is fully involved in the market, valuations are excessive and confidence is extraordinarily high.    

 

Primary Bear Market

Stage 1.    Distribution

Just as accumulation is the hallmark of the first stage of a primary bull market, distribution marks the beginning of a bear market. As the “smart money” begins to realise that business conditions are not quite as good as once thought, and thus they begin to sell stock. There is little in the headlines to indicate a bear market is at hand and general business conditions remain good. However stocks begin to lose their lustre and the decline begins to take hand. After a moderate decline, there is a reaction rally that retraces a portion of the decline. Hamilton noted that reaction rallies during a bear market were quite swift and sharp. This quick and sudden movement would invigorate the bulls to proclaim the bull market alive and well. However the reaction high of the secondary move would form and be lower than the previous high. After making a lower high, a break below the previous low, would confirm that this was the second stage of a bear market.

Stage 2.    Movement With Strength

As with the primary bull market stage two of a primary bear market provides the largest move. This is when the trend has been identified as down and business conditions begin to deteriorate. Earnings estimates are reduced, shortfalls occur, profit margins shrink and revenues fall.

Stage 3.    Despair

At the final stage of a bear market all hope is lost and stocks are frowned upon. Valuations are low, but the selling continues as participants seek to sell no matter what. The news from corporate America is bad, the economic outlook is bleak and no buyers are to be found. The market will continue to decline until all the bad news is fully priced into the stocks. Once stocks fully reflect the worst possible outcome, the cycle begins again.

Signals:

A.    Identification Of The Trend

The first step in the identifying the primary trend is to analyse the individual trend of the Dow Jones Industrial Average and the Dow Jones Transport Average. Hamilton used peak and trough analysis to ascertain the identity of the trend. An uptrend is defined by prices that form a series of rising peaks and rising troughs [higher highs and higher lows]. In contrast, a downtrend is defined by prices that form a series of declining peaks and declining troughs [lower highs and lower lows].

Once the trend has been identified, it is assumed valid until proven otherwise. A downtrend is considered valid until a higher low forms and the ensuing advance off the higher low surpasses the previous reaction high. Conversely, an uptrend is considered in place until a lower low forms.

B.    Averages Must Confirm

Hamilton and Dow stressed that for a primary trend or sell signal to be valid, both the Dow Jones Industrial and The Transport averages must confirm each other. For example if one average records a new high or new low, then the other must soon follow for a Dow theory signal to be considered valid.

C.    Volume

Though Hamilton did analyse statistics, price action was the ultimate determinant. Volume is more important when confirming the strength of advances and can also help to identify potential reversals. Hamilton thought that volume should increase in the direction of the primary trend. For example in a primary bull market, volume should be heavier on advances than during corrections. The opposite is true in a primary bear market. Volume should increase on the declines and decrease during the reaction rallies. Thus by analysing the reaction rallies and corrections, it is possible to judge the underlying strength of the primary trend.

D.    Trading Ranges

In his commentaries over the years, Hamilton referred many times to “lines”. Lines are horizontal lines that form trading ranges. Trading ranges develop when the averages move sideways over a period of time and make it possible to draw horizontal lines connecting the tops and the bottoms. These trading ranges indicate either accumulation or distribution, but are virtually impossible to tell which until there was a clear break to the upside or the downside.

Conclusion

The goal of Dow and Hamilton was to identify the primary trend and catch the big moves up and be out of the market the rest of the time. They well understood that the market was influenced by emotion and prone to over-reaction, both up and down. With this in mind, they concentrated on identification and following the trend.

Dow theory [or set of assumptions] helps investors identify facts. It can form an excellent basis for analysis and has become the cornerstone for many professional traders in understanding market movement. Hamilton and Dow believed that success in the markets required serious study and analysis. They realised that success was a great thing, but also realised that failure, while painful, should be looked upon as learning experiences. Technical analysis is an art form and the eye and mind grow keener with practice. Study both success and failure with an eye to the future.

Note 2:

Contracts for Difference

ONE of the most innovative financial instruments that have developed over the last decade or so is the CONTRACT FOR DIFFENCE, better known as a CFD. The explosion in the use of this product is one of the reasons why London, as opposed to New York, is becoming the financial location of preference for many financial managers and hedge traders. CFD’s are not allowed in the U.S. due to legal restrictions imposed by the American Regulators.

Contracts for Difference were developed in London in the early 1990’s. The innovation is accredited to Mr. Brian Keelan and Mr. Jon Wood of UBS Warburg. They were then initially used by institutional investors and hedge funds to limit their exposure to volatility on the London Stock Exchange in a cost-effective way, for in addition to being traded on margin, they helped avoid stamp duty (a government tax on purchase and sale of securities).

A CFD is in essence a contract between two parties agreeing that the buyer will be paid by the seller the difference between the contract value of the underlying equity and its value at time of contract. This means that traders and investors can participate in the gains and losses (if shorting) of the market for a fraction of capital exposed if the equity was purchased outright. In This regard the CDS’s operate like option contracts, but unlike calls and puts, there are no fixed expiration dates and contract amounts. However contract values are normally subject to interest and commission charges. For this reason they are not really suitable to investors with a long-term buy and hold strategies. 

CFd’s allow traders to invest long or short using margin. This fixed margin is usually about 5-10% of the value of the underlying financial instrument. Once the contract is purchased there is a variable adjustment in the value of the clients account based on the “marked to market” valuation process that happens in real time when the market is open. Thus for example if a stock ABC Inc. is trading at $100 it would cost approx. $10 to trade a CFD in ABC. If 1000 units were traded

it would therefore cost the investor $10,000 to “control” $100,000 worth of stock. If the stock increased in value to $110 the “marked to market” process would add $10,000 to the client’s account (110-100 by 1000). As we can see the situation works very similarly to options but for the fact that there are no standard option contract sizes and expiration dates and complicated strike levels. Their simplicity has added greatly to their popular appeal amount the retail public.

Contracts For Difference are currently available in over the counter markets in Sweden, Spain, France, Canada, New Zealand, Australia, South Africa, Australia, Singapore, Switzerland, Italy, Germany and the United Kingdom. Their power and scope continue to grow. This development poses a problem to American financial institutions in that unless there is a change in security regulation Wall Street will lose out on a financial instrument that is changing the manner in which the greater public and aggressive financial managers are investing for the future. It is expected that Contracts for Difference will become the medium of transaction for the majority of World traders within the next decade.

Note 3:

Moving Average Convergence Divergence (MACD)

 Developed by Gerald Appel, MACD is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero.

The most popular formula for the standard MACD is the difference between a stock’s 26-day and 12-day exponential moving averages. However Appel and others have since tinkered with these original settings to come up with a MACD that is better suited for faster or slower securities. Using shorter moving averages will produce a quicker, more responsive indicator, while using longer averages will produce a slower indicator.

What does MACD do?
MACD measures the difference between two moving averages. A positive MACD indicates that the 12-day EMA (exponential moving average) is trading above the 26-day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing and this would be considered bullish. If MACD is negative and declining further, then the negative gap between the faster moving average and the slower moving average is expanding. Downward momentum is accelerating and this would be considered bearish. MACD centerline crossovers occur when the faster moving average crosses the slower moving average. One of the primary benefits of MACD is that it does incorporate aspects of both momentum and trend in one indicator. As a trend following indicator, it will not be wrong for long. The use of moving averages ensures that the indicator will eventually follow the movements of the underlying security.

As a momentum indicator, MACD has the ability to foreshadow moves in the underlying stock. MACD divergences can be a key factor in predicting a trend change.  For example a negative divergence on a rising security signifies that bullish momentum is wavering and that there could be a potential change in trend from bullish to bearish. This can serve as an alert for traders and investors.

In 1986 Thomas Aspray developed the MACD histogram in order to anticipate MACD crossovers. The MACD histogram represents the difference between MACD and the 9-day EMA of MACD. The plot of this difference is presented as a histogram, making centerline crossovers and divergences more identifiable. Sharp increases in the MACD histogram indicate that MACD is rising faster than the 9-day ema and bullish momentum is strengthening. Sharp declines in the MACD histogram indicate that the MACD is falling faster that its 9-day ema and bearish momentum is increasing. Thomas Aspray recognized the MACD histogram as a tool to anticipate a moving average crossover. Divergences usually appear in the MACD histogram
before MACD moving average crossover. Armed with this knowledge, traders and investors can better prepare for potential change. Remember the weekly MACD histogram can be used to generate a long-term signal in order to establish the tradable trend, thus allowing only short-term signals that agree with the major trend to be used for investment action.

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