MACD is a widely-followed technical stock market timing indicator, but it has lost its accuracy in recent years. MACD is a measure of how quickly the stock or index has risen or fallen, and thus can demonstrate an overbought or oversold condition. Both high and low MACD values are unsustainable, and thus are used as indicators in stock market timing systems. The MACD is the difference between the stock's 12 Day Exponential Moving Average (EMA) and its 26 Day EMA. A high MACD means the stock has risen quickly. Conversely, a low MACD means the stock price has fallen quickly. Both are unsustainable (trees do not grow to the sky).
The MACD Crossover (the gray bars in the chart) measures the MACD versus its own 9 day EMA, and gives an indication of the MACD's direction. Traders look for the MACD Crossover to cross zero (0) as a buy or sell trigger. A low MACD with the MACD Crossover rising above zero can signal a buy. A high MACD with the MACD Crossover falling below zero can indicate a sell signal.
The MACD indicator was created by Gerald Appel in the late 1970's. The Crossover histogram was added by Thomas Aspray in the late 1980's. MACD is a rather primitive price oscillator by today's standards. This market timing method may miss major moves, but may be suited for long-term investors who seek to avoid secular bear markets. We hope to make the CrystalBull Trading Indicator a far more accurate indicator for stock market timing and trading systems.
MACD (Moving Average Convergence/Divergence) Chart
( HINT: Click-and-drag left-to-right on the top chart (S&P 500) to zoom in to a specific date range. Double-click on S&P 500 chart to zoom back out. )