The snapback rally in stock prices has been as violent as the recent decline, as pent-up demand for lower prices led to an acceleration in positive momentum.
One way to measure the momentum of a stock is to use a technical indicator called moving average convergence divergence (MACD). This powerful technical tool helps traders forecast the change in momentum and provides a handy signal which alerts you to the timing of your stock purchases.
The MACD, developed by Gerald Appel decades ago, turns two trend-following indicators into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The MACD generates a “buy” signal when the differential between the two moving averages — the 12-day and the 26-day — crosses above the nine-day moving average of the MACD. The reverse — a “sell” signal — is when the differential crosses below that nine-day MA.
And recently, five blue-chip stocks have flashed MACD buy signals. Here’s a look:
Click to Enlarge Apple (AAPL) reported blowout earnings last week and currently is sitting at all-time highs near $107. Sales of iPhones continue to drive the technology and consumer product giant, and positive momentum reflected by the MACD buy signal (generated Oct. 22) likely will propel the stock price higher.
The last MACD buy signal on Apple stock occurred on Aug. 14. The price of AAPL that day? $97.50.
Momentum has turned positive since the MACD generated a buy signal on Oct. 23. The last MACD buy signal came Sept. 2, which helped launch it from a price around $150.
Click to Enlarge Microsoft (MSFT) produced surprisingly high earnings driven by a robust cloud business. The company earned 54 cents per share — down from 62 cents in the year-ago period, but enough to exceed expectations of 49 cents.
It appears that the MACD on Microsoft stock generated a buy signal as of the open on Oct. 24. The next level of target resistance is seen near the recent highs at $47.57.
Wells Fargo (WFC)
The MACD on WFC stock generated a buy signal on Oct. 23. The last buy signal was generated on Aug. 14, when the stock price on WFC was just above $70.
Eli Lilly and Co. (LLY)
Click to Enlarge Blue-chip pharma company Eli Lilly (LLY) could be the leader in a volatile sector. The MACD on LLY generated a buy signal on Oct. 23. The last MACD buy signal on LLY occurred on Aug. 18, when the stock price was $61.35.
As of this writing, David Becker did not hold a position in any of the aforementioned securities.