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The MACD And False Signals

06/09/00 11:33:41 AM
by Jason K. Hutson

Using a single indicator to trade is not a wise decision. Here is an example of a possible false signal for Ebay Corporation (EBAY).

Security:   EBAY
Position:   Sell

In the chart below, the MACD turned positive in early June, 2000 giving a buy signal for EBAY. Before going ahead with the trade using this single indicator, you should verify your signal by determining whether the stock is in a trading range or trending. Keep in mind that the MACD is more effective in trending markets.

For verification, first I reviewed EBAY's chart and it seemed to be trading within a range, so I set up resistance lines based on the price peaks of the past two months. You can see an upper barrier at the $80 level.

A buy signal confirmation should only be altered after the penetration and advancement through the $80 price level. Until that occurs it would not be wise to go long and expect the price to rise any time soon.

Look out for the upper green resistance line if you would consider going long on EBAY at this point. Although the MACD has turned positive, there has not been any substantial breakthrough at the $80 price range.
Graphic provided by: CQG.

Jason K. Hutson Staff Writer. Enjoys trendlines, support and resistance, moving averages, RSI, MACD, ADX, Bollinger bands, parabolic SAR, chart formations, and volume analysis.

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