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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 he published in 1969, the indicator is loosely based on the concept of the Japanese candlestick technique. Ichimoku Cloud utilizes 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 levels in the future (26-period forward). The indicator utilizes time to give a simplified picture of current and future price trends.


Ichimoku Kinko Hyo translates to a one-look equilibrium chart. You can uncover the current and future dominant trend and current and future support and resistance levels in one look.


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 signals the direction of a trend, gauges the momentum, and alerts users to trading opportunities based on the line crossovers and the price relationship 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, identifying the prevailing trend and forecasting future support and resistance levels.


The relationship between the price, the conversion line, and the baseline confirms the short-term trading signal:

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 are the distance between the price and the cloud and the thickness of the cloud. It helps 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/resistance levels. 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 has severely contracted, conveying a choppy trading range environment. The bulls and bears remain deadlocked, at least from a near-term perspective. The outcome of this battle will lead to an impending stock market breakout or breakdown soon (a few days/weeks).


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 the price breaks below the cloud, retests the cloud area from below and struggles to clear the area becomes strong resistance.


Ichimoku Cloud differs from other technical indicators because it conveys current and projected support and resistance. Since the cloud is plotted 26 days ahead of the last price point, it provides a glimpse of future support or resistance levels. This is useful after a price breakdown or breakout, conveying the resistance and support levels needed to reverse the trend.


Summarized below are Ichimoku Cloud levels for popular market indexes:

S&P 500 Index (SPX – 4,402.20)

Current support = 4,325-4,335 (Jun 2023 breakout and Aug 2023 lows)

Current resistance = 4,483.5-4,486 (50-day ma and the Jul 2023 downtrend)

26-day forward support/resistance = 4,447.5/4,471


Dow Jones Industrial Average (INDU – 34,440.88)

Current support = 33,810-34,029 (8/25/23 low, the extension of Dec 2022 downtrend breakout, and the 200-day ma)

Current resistance = 34,864.5-35,167 (50-day ma, 8/31/23 high, and the 8/1/23 downtrend)

26-day forward support/resistance = 34,692/34,634.5


NYSE Composite Index (NYA –15,859.62)


Current support = 15,811-15,898 (Aug/Dec 2022 highs and Sept 2023 lows), 15,602-15,627 (Aug 2023 lows, Oct 2022 uptrend, and 200-day ma), and 15,315-15,450 (Mar 2023 uptrend and 6/23/23 low)

Current resistance = 16,045-16,152 (50-day ma, Jul 2023 downtrend, and Sept 2023 highs), 16,222 (Feb 2023 highs), and 16,459 (Jul 2023 reaction highs)

26-day forward support/resistance = 16,043/15,933


Nasdaq Composite Index (COMPQ – 13,469.13)


Current support = 13,334-13,397 (6/26/23 low and Jan 2023 uptrend), 13,162-13,181 (Jun 2023 breakout and Aug 2023 lows), and 12,269.5-12,450.5 (May 2023 breakout and 200-day ma)

Current resistance = 13,876-14,149.5 (50-da ma, Jul 2023 downtrend, and 9/1/23 high) and 14,446.5 (Jul 2023 reaction high)

26-day forward support/resistance = 13,804/13,684


Nasdaq 100 Index (NDX – 14,969.92)


Current support = 14,558-14,925 (Jul/Aug 2023 lows), 13,721 (May 2023 breakout), and 13,452.5 (200-day ma)

Current Resistance = 15,312-15,619 (50-day ma, Sept 2023 highs, and Jul 2023 downtrend) and 15,932 (Jul 2023 highs)

26-day forward support/resistance = 15,245/15,164


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of StockCharts.com

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