Got this on MACD from an email received.
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stockpicks.web.com
9.) Technical Analysis Tip of the Week
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MACD
One of the key indicators as you know we have on all our stock picks is
MACD. MACD is an oscillator which is derived by dividing one moving
average by another. In today's computer programs, the moving averages are
usually exponentially weighted, thus giving more weight to the more recent
data. It is plotted in a chart with a horizontal equilibrium line. The
equilibrium line is important. When the two moving averages cross below
the equilibrium line, it means that the shorter EMA is at a value less
than the longer EMA. This is a bearish signal. When the EMA's are above
the equilibrium line, it means that the shorter EMA has a value greater
than the longer EMA. This is a bullish signal. Most of the stocks we
profile have upward MACD trends. When analysing small cap stocks for a
holding period of between 1-3 months, a bullish MACD signal is key to the
companies growth. The usefulness of the MACD is again, that it lets us
forecast entry and exit points. When we see a MACD cross above its longer
term EMA, we issue a buy signal, when the opposite occurs, we issue a sell
signal.
The name of the indicator is derived from the fact that the shorter EMA is
continually converging toward and diverging away from the longer EMA. Many
MACD systems also use histograms. The histogram acts as the oscillator. It
shows us the historic MACD average over the course of a certain number of
past trading days. MACD's can be used for an infinite number of time
periods. Many technicians, for buy signals, use a combination of 8, 17,
and 9 days for their daily EMA's. However, they use 12, 25, and 9, days
for their sell signals.
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