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MACD, the Moving Average Convergence/Divergence indicator, developed and popularized by Gerald Appel, provides a uniquely sensitive measurement of the intensity of the trading public’s sentiment and provides early clues to trend continuation or reversal. According to Appel, this indicator is particularly dependable in signaling entry points after a sharp decline. The MACD indicator may be applied to the stock market as a whole or to individual stocks or mutual funds.

The MACD indicator uses three exponential moving averages: a short or fast average, a long or slow average, and an exponential average of the difference between the short and long moving averages, which is used as a signal line. (See Moving Averages below for a discussion on simple and exponential moving averages.)

• MACD reveals overbought and oversold conditions for securities and market indexes, and generates signals that predict trend reversals with significant accuracy.
• MACD produces less frequent whipsaws, as compared with moving averages.
• Telescan uses a type of shorthand to refer to MACD indicators. An “8-17-9 MACD”, for example, uses a short (fast) moving average of eight days or weeks, a long (slow) moving average of 17 days or weeks, and an exponential moving average of nine days or weeks. (The use of days or weeks depends on the time span of the stock graph.)
• Gerald Appel recommends an 8-17-9 MACD to generate buy signals and a 12-25-9 MACD to confirm a sell signal for a stock, which has had a strong bullish move.
• Regardless of the accuracy of this indicator, one should not rely on a single indicator. Study as many technical and fundamental indicators as possible before arriving at your investment decisions.