The MACD

One of the most commonly studied technical indicators is
the MACD. This indicator (Moving Average Convergence / Divergence) reflects a
difference between moving averages and refers to the ascendancy or not
of the mid-term relative to the short term.

The considered average lengths are respectively 26 days
(0.075 exponential coefficient) and 12 days (exponential coefficient
of 0.15).

Moreover, to estimate the variations of the trend, an
auxiliary indicator (named signal line) is formed. It is based on a new
exponential average on 9 days (0.20 coefficient).

The advantage of this indicator is triple: absolute
position of the MACD, relative position to its signal line and existence of
divergences.

From the first point of view, oversold and
overbought situations can be identified. Thus, a strong rise of the MACD
indicates that the 12-day moving average is more rapidly rising than the 26-day
one, thus showing a stronger volatility in the short term. Then, the crossing
of the zero level should be considered with special caution.

From the second point of view, one of the most relevant
invitations to buy is the crossing up of the signal line by the MACD,
especially when it occurs on up reversing levels for the MACD (cf.
graph).

From the third point of view, divergences can be
identified between the MACD trend and that of the stock price on a given period.
This phenomenon is marked by the more than proportional increase or decrease of
the MACD compared to the stock variation (cf. graph).