Indicators MACD, part 2

MACD gives a disservice signals from three main sources. These signals are a reflection of bull signals.

1. The negative divergence
2. Medvezhye crossing moving averages
3. Medvezhye crossing the center line

The negative divergence
Negative divergence is formed when a financial instrument increases or moves sideways and MACD declines. The negative divergence in MACD can take the form of a lower recovery, as well as direct reduction. Negative divergence is probably the least frequent of these three signals, but usually the most reliable and can warn about the possible maximum.

FDX graph shows a negative divergence when MACD formed a lower rise in May, a campaign set up a higher maximum at the same time. This was quite apparent negative divergence, and reported a slow dynamics. A few days later, the action damaged the rising trend line and the MACD formed a lower minimum.

There are two types of confirmation of negative divergence. First, when the indicator is formed of a lower minimum. In this case, to apply the traditional indicator of the "peak and troughs." With a lower peak and subsequent decline in the lowest, rising trend is changing for the MACD to bovine to bear. In the second, Medvezhye crossing moving averages, which is explained below, can act as a confirmation of a bear divergence. While the MACD traded above its 9-day EMA (exponential moving average) or pulse line, it is not turned down, and lower recovery is difficult to confirm. When MACD breaks below its 9-day EMA, it signals that the short-term trend for the indicator, and possibly diminishing the formation of a temporary peak.

Medvezhye crossing moving averages
The most common signal for MACD is crossing moving averages. Medvezhye crossing moving averages occurs when MACD declines below its 9-day EMA. Not only that these signals are the most abundant, but they are also the least reliable. Therefore, the crossing of moving averages must be confirmed by other signals to avoid false signals and rapid turn.

Sometimes a financial instrument may be in a strong rising trend and MACD will remain above its pulse line for an extended period. In this case, it is unlikely that will develop a negative divergence. Different signals are needed to identify potential changes in the dynamics. This situation occurred with MRK in February and March. The action was in a strong bull trend and MACD remained above its 9-day EMA for 7 weeks. When Medvezhye crossing moving averages, it was a sign of slowing down the upward momentum, which informs on the need to more closely monitor the technical situation for further evidence of the weakness of the dynamics. Weak momentum was soon confirmed, when the action violated her bovine trend line, MACD continued its decline and moved below zero.

Medvezhye crossing the center line
Medvezhye crossing the center line occurs when MACD moves below zero to negative territory. This clearly shows that the dynamics changed from positive to negative, or a bull at disservice. Crossing the center line can act as an independent signal, or to confirm the previous signal, such as crossing moving averages or negative divergence. As soon as the MACD has shifted to negative territory, momentum, at least for the short term, has become a bear.

The importance of crossing the center line will also depend on previous movements of MACD. If the MACD as a positive for many weeks, begins to decrease and then moves to the negative territory, it is seen as a bearish sign. However, if the MACD has been negative for several months, it breaks above zero and then below are more similar to the correction. To assess the importance of crossing the center line can be used traditional technical analysis, to see whether the change in trend, higher recovery and a lower reduction.

Schedule UIS shows Medvezhye crossing the center line, which was preceded, a 25% drop in shares of mu, occurring only at the right edge of the schedule. While there was little time after the appearance of this signal, there were other warning signals just before the dramatic falls.

1. After reducing the trend line support, formed Medvezhye crossing moving averages.
2. When action was restored after the decline, MACD did not even move higher pulse line, indicating a weak upward momentum.
3. The peak of the recovery movement was marked by a candle by the "shooting star" (blue arrow) and GEPom (gap) down with increased (red arrows).
4. After GEPa down, the blue trend line, continuing from April 1999. Has been violated.

In addition to the signals referred to above, Medvezhye crossing the center line occurred after the MACD is above zero for almost two months. Since September 20, MACD becoming weaker and the dynamics slows down. Breakthrough below zero to act as a final touch a long process of abating.

Combining signals
As with bychimi signals MACD, bear the signals can be combined to form a more reliable signal. In most cases, stocks are falling faster than the rise. It definitely took place, and UIS, and only two bear signal MACD. Using dynamic indicators like MACD, technical analysis can sometimes provide information about the impending weakness. While it may be impossible to predict the length and duration of reduction, identifying weak momentum traders can take a more secure position.

Following the publication of a profit warning in late February 2000., CPQ mark fell from above 40 up to below 25 for several months. Without the insider information to predict the profit warning was not possible. However, it seems, some traders began to close positions before the actual warning. Looking at the technical picture, we can see evidence of this closure, and a serious loss of momentum.

1. In January, the MACD formed a negative divergence.
2. Cash flow Chaikin January 21, changed to negative.
3. Also in January there MACD Medvezhye crossing moving averages (black arrow).
4. Trend line tyanuvshayasya in October, February 4, was violated.
5. In MACD on 10 February was Medvezhye crossing the center line (green arrow).
6. 16, 17 and 18 February, the support at around 41 1 / 2 was violated (red arrow).

It has been 10 full days during which the MACD has been below zero and continued to decline (thin red lines). On the day before GEPom down, MACD was at the lowest levels since October. For those who waited for the restoration of shares, the continued decline of momentum has indicated that the pressure of sellers has increased and is not going to shrink.

After carefully studying the historical situation, you can learn to better understand the present and preparing for the future.

In Part 3 will be considered the advantages and disadvantages of MACD.

Arthur Hill
www.stockcharts.com