Stock Chart Magic, PPO and MACD
Posted by Blain Reinkensmeyer
June 7, 2007 at 12:59 am
I was fiddling around with some stock charts over at stockcharts.com and I came across the following chart of the NASDAQ:
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.
So, next time you get into a debate with a business colleague or family member about who knows more about investing, ask them “O ya, so what’s the difference between PPO and MACD in technical analysis smart guy?” and before they can answer with a, “I dunno, WHAT” tell them there is no difference, that PPO is just the percentage version of MACD, duh…. and walk away before they ask you what PPO and MACD stand for, hahaha.
(For educational purposes, a great article explaining MACD can be found here)
If you enjoyed this post, make sure to Subscribe to the feed (you can also subscribe with free email updates). Then, check out the Investors Forum (New members register here!)
Related Posts:
- 8 Technical Analysis Posts That Make Sense
- Stock Trading 101 Week in Review 5
- Technical Analysis, Using MACD
- Stock Chart Analysis, Apple
- Apple Stock Chart Analysis Follow Up
Recent Posts:
- Etrade Financial Online Stock Broker Speed Review
- Timeline of 17 Recessions and World Crises Since Great Depression
- 40 Great Inverse / Short ETFs For Bearish Investors
- OptionsXpress Online Stock Broker Speed Review
- Weekly Market Commentary - July 15, 2008
Filed Under Stock Market Education |
Subscribe to the Blog
|
Recieve Blog Updates by Email!
----------------------------------------
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.
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!
I will email you with some other good sites to check out!
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.