At the MACD Rain StockFinder webinar, a question came up about a MACD Divergence on the weekly chart of the Dow 30, as shown in the chart of the NYSE:DIA (Diamonds Trust Series ETF that represents the Dow 30). Click chart to see larger view.
The price and MACD indicator action lately on the weekly meets the basic criteria for a MACD divergence: the price is reaching a higher high while the MACD is tracing out a lower high. During the webinar, the BackTesting Report MACD Divergence scanner for StockFinder did not mark that DIA weekly negative divergence on the default chart because price makes a higher high within 100 bars – the default lookback period. But when the lookback period (user input DivSpan) is set to 50, the MACD Divergence on the weekly chart of DIA is marked in red. See the chart at top.
The choice of 100 for the default lookback period was arbitrary. Its the value used for the BackTesting Reports. Other values were not tested.
Given that many stocks have similar price patterns of a higher high in 2008, to get a comprehensive view of all the negative divergences on weekly charts, one needs a shorter lookback period at least until Oct 2010.