An MACD crossover is a reference to the technical analysis indicator for stock prices known as the Moving Average Convergence-Divergence, or MACD. This indicator takes two moving averages, which trace the average price of a stock over time, and compare them to one another. When a 12-day moving average passes the 26-day average in either direction on an MACD chart, it is known as an MACD crossover and indicates a possible trend in the price of the stock. Another crossover occurs when the MACD itself — which is the difference between the two moving averages — crosses over the signal line, which is a nine-day moving average of the MACD.
Technical analysts attempt to use past stock price performance as a way of indicating future price movement. Moving averages represent the average price of a stock over a period of time. As time passes, new price data replaces old data and the average moves, indicating a possible trend. Some analysts go even further by comparing moving averages of different lengths to each other to form the Moving Average Convergence-Divergence indicator. When these averages go up and down, they often pass each other, creating an MACD crossover.
To calculate the MACD, the 26-day moving average of a stock is subtracted from the 12-day moving average. These two averages are placed on a chart, and when they cross each other, an MACD crossover is created. At the moment that they crossover, the MACD is zero. When it goes above zero, it indicates a rising price trend. If it goes below, it means that prices are trending downward.
Another MACD crossover occurs when the MACD itself crosses the 9-day moving average of the MACD. This 9-day MACD moving average, when charted, is known as the signal line. The idea here is that, because it is a moving average itself, the signal line will be slower to move than the MACD. Depending on the direction in which the MACD crosses the signal line, it will send out positive "bullish" or negative "bearish" indications to investors.
As with any technical indicator, an MACD crossover is not without its flaws. A stock that is particularly volatile can be difficult to gauge even with the MACD. In addition, the fact that the MACD is built on moving averages means that it includes a lot of data from past dates. Since that is the case, it tends to be slow-moving in comparison with actual stock prices, meaning that it might lag a bit behind a fast-moving trend.
