Winsufer, Glad you asked!
MACD is an abbreviation for Moving Average Convergence Divergence (cute eh). It is one of many technical indicators to attempt to allow the investor to gain an insight into a stock or market direction. I could not possibly explain to you the manner in which it is computed.
However, I've spent a lot of time looking at the 50 or so indicators I have available, and historically determining if they actually indicated anything of value. I like the weekly MACD as it seems that the trends (bullish vs. bearish) seem to last for months.
My area of concentration is FA (fundamental analysis), which considers whether a company is an appropriate investment. But, as I've learned the hard way, we are buying the stock and not the company, and the movements of the stock fall into the world of TA (technical analysis). Before stumbling on to this, I found myself investing in good, quality companies and watching the stock go down. Not fun!
Now I use the FA to limit the investment universe and I use TA to time my entry and exit points. Too many times in the past, I found myself buying too soon and selling too soon. With the TA, I will not get the bottom like you and Jury did on the Leaps, and I will not get out at the absolute top. What I hope to do, is take advantage of a sustained trend. It lets me sleep better and be a little less anxious.
I find that the TA works better with the large cap stocks, but this may well be due to my inexperience. Nonetheless, at the end of Jan, there were 272 companies with a market cap of greater than $10B. Seems like a reasonable universe to start from.
All this said, no amount of FA or TA is going to protect one from macro developments (Asia, Iraq, Oral Office, etc.), which is, I believe, the essence of undifferentiated, market risk. Further, only diversification protects us (to some degree) from company specific implosions and explosions (i.e., the dreaded bad news that tanks the stock).
So, all that said, weekly bullish and bearish MACD signals don't occur with very great frequency for a particular stock (like 4 or 5 times a year). Further, as we just saw with INTC, a big part of the stock movement has already taken place. So we need some other indicator(s) to assist us in refining our timing. I'm playing with Stochastics, RSI and Moving Averages. A Fellow Dude, Steve, likes candlesticks.
Nothing is perfect; we're just trying to gain a better insight. Hope this helps. Now, back to work! (ugh).
Berney |
