Macd - Moving Average Convergence Divergence

MACD-Moving Average Convergence Divergence

MACD is a technical analysis indicator used to spot the changes in the strength, momentum, duration of trend and direction in a stock's price. The difference between 12-day Exponential Moving average (EMA) and 26-day EMA will give the value of MACD and it's usually represented by blue line known as MACD line. Also, there is red line known as 'signal line' which is drawn over MACD line is nine day EMA.

MACD helps in predication of stock trends to traders in three ways when MACD line crosses the signal line, divergence between MACD and signal line and MACD central line crossovers.

Source: Adapted from http://www.euroinvestor.co.uk/stock/chart.aspx?id=2110

From the graph above we can observe that on 01st November 2010 the MACD line crosses the signal line in downward direction giving indication of bearish trend. The stock price which was trading at 420.00p at the close of 01st November 2010 went down as low as 372.60 p on 30th November 2010.The stock lost 47.40 p during this phase and started converging towards the signal line.

From 01st December 2010 to 18th January 2011 there was not much of divergence between the MACD line and signal line. The stock was trading in narrow price range between 369.00p to 388.20p without showing any direction. The closing price at the end of 18th January 2011 was 382.10p where MACD line starts to cross the signal line again in downward direction giving indication of another bear phase.

The price of stock started to fell from 19th January 2011 marking the beginning of bear phase and reached a price of 331.21p on closing of 16th March 2011.After which the MACD line cross the signal line in upward direction giving indication of bullish trend.

The stock rose to 335.10p on 17th March 2011 from previous day close of 331.21p.The stock continue to rose with 358.10p on 24th March 2011 and reached as high as 391.00 during closing of 27th March 2011.The stock gained 59.79p during this phase.

Prediction

The MACD line continues to diverge from the signal line in upward direction confirming the stock is still in bullish phase. Given, the conditions we predict Marks and Spencer should be trading between 390-415p in the month of the May.