V.6:9 (346-349): MACD momentum Part 2 by Thomas Aspray

MACD momentum Part 2 by Thomas Aspray

Last month I looked at how the MACD Momentum (MACD-Mo) and MACD Histogram (MACD-H) were excellent intermediate indicators for stocks as well as commodities. I also use the MACD-Mo and MACD-H on daily data, but the rules of interpretation and timing with the daily studies are somewhat different. In this article I will concentrate on daily activity in many of the major markets to help you utilize MACD studies in your own analysis.

To utilize the MACD studies on daily data, it is imperative that you study the intermediate trend as determined by weekly indicators. Several indicators such as the Herrick Payoff Index, Demand Oscillator and on-balance volume can be used effectively with the weekly MACD-Mo and MACD-H.

For trading purposes, combine both the weekly and the daily MACD-Mo and MACD-H to determine how much weight the individual signals should be given. For example, when the weekly MACD-H and MACD-Mo are both positive, short-term peaks in the MACD-Mo should be used as a signal to exit longs and wait for new signals on the long side.

Conversely, if both the weekly indicators are negative, then short-term tops in the MACD-Mo should be used to initiate short-term positions. If the weekly MACD-Mo is declining while the MACD-H is still positive and rising, then more weight is given to the MACD-H.

On the daily charts, short-term positive signals by MACD-Mo should be confirmed in two to five days using buy signals from MACD-H. Failure of MACD-H to confirm MACD-Mo is consistent with a technical rebound, not the start of another leg to the upside. In addition, longer-term divergences (i.e., 4-8 weeks on the daily charts and 4-6 months on the weekly charts) on the MACD-Mo and MACD-H are very important.