Relative share price MACD maps

- "In this report, we consider the use of relative share price Moving Average Convergence-Divergence (MACD) maps as a sector rating and stock selection tool. Relative share price MACD maps can be used to determine which sectors or stocks are the most attractive candidates for long or short positions from a technical analysis perspective. For example, in the exhibit below, an MACD map based on share prices relative to the TOPIX (for TOPIX-17 Series sectors as of 3 September 2010) indicates that the electric power & gas, pharmaceutical, foods, real estate, automobiles & transportation equipment, and commercial & wholesale trade sectors are potential candidates for long positions. However, electric power & gas is at the top of the map and looks close to a turning point. Conversely, the energy resources, electric appliances & precision instruments, raw materials & chemicals, and retail trade sectors appear to be potential candidates for short positions. The map indicates that financials (ex banks) is another possible candidate for shorting, but we think this sector is also approaching a turning point and should actually be considered for bottom picking from now on. At the end of this report, we provide MACD maps based on share prices relative to the TOPIX for the top five companies in terms of market cap in each of the TOPIX-17 Series sectors."

• "Relative share price MACD can be used for sector ratings and stock selection: MACD is a technical analysis trend indicator that focuses on the widening or narrowing of the gap between a short-term moving average and a medium-term moving average. In general, although technical indicators are useful for helping to identify the optimum timing of transactions in individual indices or stocks, they are not easy to use for the purpose of a side-by-side comparison of individual sectors or stocks. MACD is no exception in this respect, but the use of MACD based on relative share prices enables us to avoid the problem of trading signals being affected by the direction of the market as a whole or being skewed toward a particular position."

• "Basic concept of relative share price MACD maps and how to use them: In this report, we present
relative share price MACD maps as a sector rating and stock selection tool. By plotting the relative  hare price MACD on the x-axis and the MACD histogram on the y-axis, we can see the relative status of each individual sector or stock at a glance. The MACD maps show movements in the various data series over time, and our basic strategy is that sectors or stocks that are either in the 1st quadrant or about to move into it are potential candidates for long positions, while sectors or stocks that are either in the 3rd quadrant or about to move into it are potential candidates for short positions. In addition, the direction of each individual data series can help identify which stocks to buy on dips and which stocks to sell to lock in profits, within a particular quadrant, by indicating the strength or weakness of the buy or sell ratings."

Nomura Investment Strategy 20100914