How is the standard MACD line constructed in technical analysis, and what constitutes a basic bullish signal?

[ A ]The MACD line is the 200-day simple moving average multiplied by the stock's dividend yield.

[ B ]The MACD line is calculated as the current stock price divided by the trailing 12-month book value.

[ C ]The MACD line is the difference between the 12-day EMA and 26-day EMA; a bullish signal occurs when the MACD line crosses above its 9-day EMA signal line.[ CORRECT ]

[ D ]A bullish signal occurs exclusively when the MACD line drops below negative 100.

Takeaway

The MACD line equals the 12-day EMA minus the 26-day EMA, and a basic bullish signal occurs when the MACD line crosses above its own 9-day EMA (the Signal Line).

Derivation

Because the 12-day EMA reacts faster to recent price changes than the slower 26-day EMA, the MACD line (their difference) turns positive and rises when short-term momentum outpaces the longer-term trend, reflecting strengthening bullish momentum. The 9-day EMA of the MACD line itself (the Signal Line) smooths this further, and when the faster-reacting MACD line crosses above its own smoothed Signal Line, it confirms that upward momentum has just accelerated — the classic bullish crossover trading trigger. Candidates are commonly tested on correctly identifying both EMA periods (12, 26) used to build the MACD line and the separate 9-day EMA used to build the Signal Line, since mixing these up is an easy exam trap.

Why the others fail

A — The MACD line is the 200-day simple moving average multiplied by the stock's dividend yield.

The 200-day moving average multiplied by dividend yield is not a recognized formula for any standard technical indicator, and bears no resemblance to the MACD line's EMA-difference construction.

B — The MACD line is calculated as the current stock price divided by the trailing 12-month book value.

Price divided by trailing book value describes the Price-to-Book valuation ratio, a fundamental-analysis metric, not the momentum-oscillator construction used to calculate the MACD line.

D — A bullish signal occurs exclusively when the MACD line drops below negative 100.

A bullish signal is generated by the MACD line crossing above its signal line, reflecting strengthening upward momentum — not by the MACD line dropping to an extreme negative reading.