These four stocks recently created a bullish MACD crossover, signaling the potential end of the pullback and the start of the next up-trending wave. The MACD indicator is composed of two lines: the MACD line and a slower-moving signal line. When the MACD crosses above the signal line from below it presents a potential buying opportunity. Trade all the crossover signals though, and the account will go bust — likely quickly. Ideally, only trade bullish MACD crossover signals when there is in an overall uptrend underway. The crossover serves to indicate a pullback may be over and the next wave of th trend is beginning. Here are four such signals. 

Advanced Semiconductor Engineering, Inc. (ASX) had advanced more than 50% from February lows to the June high, but has been retracing over the summer. A 3.6% jump on Oct. 3 created a bullish MACD crossover buy signal, as well as breaking above a short-term trendline. This could indicate the next wave of the uptrend is beginning. Place a stop loss below $5.85 (even $6.00 should suffice) to control risk on the trade. Hold the trade for as long as the MACD line stays above the signal line. An alternative to this is using a price target near $7.25. (For related reading, see: Bullish and Bearish MACD Crossovers.)

Taiwan Semiconductor Manufacturing Co. (TSM) is in a very similar technical position to ASX. A 2.66% rise on Oct. 3 created a bullish MACD crossover signal and a short-term trendline break, indicating more potential upside. The stop loss goes below $19.75, although below $20 should be enough room. Hold the long position for as long as the MACD line stays above the signal line. Alternatively, place a target just above $24. (For more, see: Stocks with Bullish MACD Crossovers.)

Carter's, Inc. (CRI) is a seeing a sharp move to the upside to kick off October. The rally triggered a MACD crossover buy signal on Oct. 2, which aligns with the longer-term uptrend. The downside of the trade as this point is that the sharp price move has already pushed the price well away from the logical stop area of just below $76.58 (September low); other stop loss placements include just below Oct. 3 or Oct. 2 daily lows, at $80.79 or $79.38, respectively. Hold the long for as long as the MACD line stays above the signal line. (For more, see: Four Bullish MACD Crossovers.)

PPL Corp. (PPL) moved higher from the start of year to June, but since been pulling back. A higher swing low in September indicates buyers are stepping back into the stock. A bullish MACD crossover was also generated on Oct. 3. Place a stop loss just below the September low of $32.41. As with the other stocks, the long trade can be held for as long as the MACD line stays above the signal line. The stock has tendency to be choppy though, which could create false sell signals on the MACD (MACD line crosses back below signal line). To avoid this, only consider using the MACD as a sell (exit) signal when and if the price moves above $35. Alternatively, use a target near $36.50. (For more, see: 5 Bullish MACD Crossovers.)

The Bottom Line

A bullish MACD crossover can actually provide good trade signals, yet context is extremely important. Focus on bullish MACD crossovers when there is an overall uptrend in play. The signal may provide a good entry point into the next trending price move. No indicator works all the time, though. Pullbacks can continue after the signal occurs, or the timing of the indicator signal (the trade) may turn out to be poor. For this reason, utilize a stop loss to limit a the amount being risk on each trade. (For more, see: A Primer on the MACD.)

At the time of writing, Cory Mitchell did now own any of the stocks mentioned in this article. 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.