Stock Chart Magic, PPO and MACD

For investors that are interested in technical analysis or practice it often understanding the difference between PPO and MACD is very useful.

Stock chart analysis is critical to investment success so take a look at the chart below to see visually both Percentage Price Oscillator (PPO) and Moving Average Convergence Divergence (MACD) in action.

stock chart magic NASDAQ

Ignoring the actual chart, at first glance it seems as if the top box is the same as the bottom… and at a second glance you can notice in the top box it says very clearly “PPO” as the header in the top left corner but the bottom box header is “MACD”… so whats the deal?

A quick lesson in technical analysis, and it lies in PPO and MACD

They are basically the same, the only difference is that Percentage Price Oscillator (PPO) expresses the difference in moving averages as a percentage, not as a value.

Further Reading:

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Comments

  1. says

    Hi Blain,
    I’m very interest in learning more about technical analysis, did you write a series about that or do you know a good source where I get the right info. There are so many websites that are made by clowns… it is tough to find valuable source of information ;-)
    thx!
    FB.

  2. says

    I continue to write more and more on technical analysis each day and add it to the investor education archives. I agree there are tons of websites made by clowns, it is actually pretty ridiculous when you think about it! :shock:

    I will email you with some other good sites to check out!

  3. says

    While the MACD and the PPO may be similar in appearance, to say that they are “basically the same” belies their values as predictive indicators. It is precisely that they look so similar that traders often make the mistake of dismissing one or the other as a redundancy. When used in combination, their true value lies in whether they are converging or diverging relative one to the other. Some examples of stocks in which the MACD and PPO are working together harmoniously would be CC, BRLC, and JSDA. These are obviously only three example culled from among many thousands.

    As of today, January 9, 2008, a perfect example of a stock whose MACD has been rising while its PPO has been declining is BCAS. If one were only to have relied on the MACD crossover, without confirmation from the PPO, one may well have made the mistake of buying into it. This has been the case since around November 19, 2007, on the daily chart.

    These two indicators used in combination also have tremendous predictive value on the weekly and monthly time frames. A perfect example would be HDL. Around February of 2007, the MACD histogram swung into its positive range on the monthly chart, while the PPO histogram failed to follow. At the time the stock was trading at around $8.00. As of today, it is trading in the range of $1.50.

    These indicators are perfectly capable of doing completely different things, and when they do, look out! Another example would be GVSS. Note that its MACD has been steadily rising for years, even as its PPO has been doing just the opposite. Note that its price has been steadily declining even as its MACD continued to rise. GNTA provides another perfect example of divergence between these two indicators on the monthly chart. Note that while the MACD crossed over in oversold territory in mid-2005, and that its MACD has been steadily rising since then, the PPO histogram swung negative around late 2006, and the price has precipitously declined ever since.

    If I had to limit myself to only two indicators, the MACD when confirmed by a PPO that perfectly mimics its behavior across multiple time frames would be all that I would need to find the winners, while a rising MACD disconfirmed by a falling PPO would be all that I would need to avoid the losers.