Ichimoku Clouds Update
Ichimoku Cloud or Ichimoku Kinko Hyo is a popular technical indicator created by journalist Goichi Hosoda. Introduced to the public in a book published in 1969 indicator is loosely based on the concept of the Japanese candlestick technique. Ichimoku Cloud utilized modified multiple moving average calculations and plots the information on a chart via “clouds.”
It attempts to forecast where price trends may find support or resistance in the future. The strategy also utilizes time to give a clearer picture of current and future price trends.
Ichimoku Kinko Hyo translates to a one-look equilibrium chart. In one look, you can uncover the dominant trend and future support and resistance.
Ichimoku Clouds is one of the few forward-looking technical indicators. The only lagging components are the two moving averages. The two parts of the cloud coupled with the lagging line identify forward momentum and future support and resistance. It can also signal the direction of a trend, gauge the momentum, and alert users to trading opportunities based on the line crossovers and the relationship of the price to these lines.
The indicator may appear to be overwhelming and confusing because of the complex chart comprising five different lines - Conversion Line (tankan-sen), Base Line (kijun-sen), Lagging Span (chikou span), Leading Span A (senkou span A), and Leading Span B (senkou span B).
Once a trader is familiar with the Ichimoku Clouds, it is a simple and easy indicator to understand and interpret, producing clear buy and sell signals.
The cloud or Kumo, comprising the Leading Span A and B, is the heart of the indicator. It identifies the prevailing trend and forecasts future support and resistance levels. The relationship between the price, the conversion line, and the baseline confirms the short-term trading signals
The three primary things to remember about Ichimoku Cloud:
(1) If the price is trading above the cloud, the price trend is bullish and will trend higher.
(2) If the price is below the cloud, the price trend is bearish and will trend lower.
(3) If the price is trading in the cloud, the price trend is flat and will trend sideways.
Other points worth mentioning. The distance between the price and the cloud and the thickness of the cloud can help convey the strength of the support and resistance zone, trend, and momentum.
When the cloud is skinny, it denotes weak support/resistance and warns of an imminent price breakout or reversal. A thick cloud typically signals formidable support and resistance. If the clouds are mixed and contracting, as depicted by a messy chart, it warns of a trading range. A trader should avoid trading inside the Kumo cloud, as it signals a period of indecision.
The cloud acts as major or minor levels of support and resistance. In a rising trend with a thick cloud, look to buy when the price falls toward cloud support. In a downtrend with a thick cloud, look for a rally into the cloud resistance to short.
Like other technical interpretations, when price breaks below the cloud, retests the cloud area from below and struggles to clear the area becomes strong resistance.
The above technical developments are evident as failed oversold rallies near resistances are visible across market indexes.
Ichimoku Cloud is different from other technical indicators because it conveys current support and resistance and future levels projected into the future. Remember, the entire cloud shifted forward 26 days into the future. The cloud plotted 26 days ahead of the last price point provides a glimpse of future support or resistance. It is helpful after a price breakdown or breakout, conveying the resistance and support levels needed to reverse the trend.
The price breakdowns in major U.S. market indexes and the subsequent failed oversold rallies have created an ideal scenario for using the Ichimoku Cloud to help identify the current and future resistances 26 days out, which interestingly coincides with the next 2-day FOMC meeting on 7/26-7/27.
Summarized below are Ichimoku Cloud interpretations for popular market indexes:
S&P 500 Index (SPX – 3,902.62)
Current resistance = 3,946-3,978 - Bearish trend - 6/28/22 high and 50-day ma
Future resistance = 3,875-4,011 - Bearish trend - below a falling and expanding cloud
Dow Jones Industrial Average (INDU – 31,384.55)
Current resistance = 31,885-31,965.5 - Bearish trend - 6/28/22 high and 50-day ma
Future resistance = 31,219.5-32,190 - Bearish trend - below a declining cloud
NYSE Composite Index (NYA –14,676.50)
Current resistance = 15,028-15,176 - Bearish trend - 6/28/22 high and 50-day ma
Future resistance = 14,815.5-15,246 - Bearish trend - below a declining cloud
Nasdaq Composite Index (COMPQ – 11,621.35)
Current resistance = 11,677-11,677.5 - Bearish trend - 50-day ma and 6/28/22 high
Future resistance = 11,353-11,889 - Bearish trend - below a declining cloud
Nasdaq 100 Index (NDX – 12,109.05)
Current resistance = 12,176-12,196 - Bearish trend - 6/27/22 high and 50-day ma
Future resistance = 11,858-12,403 - Bearish trend - below a declining cloud