Are you wondering where the market is heading? At this point in time, it is worth deciding where you stand. Are you Bullish, Bearish or undecided?
A really excellent tool for helping visualize a what stage the market is in is the Ichimoku Cloud.
Details of the rather exotic Ichimoku Cloud Theory can be found on the web. The Society of Technical Analysts have good information on reading and understanding the Ichimoku Charts here.
Ichimoku Explained Simply
- When a price pattern enters and breaks through the cloud downwards from above this is a bearish sign.
- When a price pattern enters the cloud from below and breaks out up through the cloud this is a bullish sign.
- The Cloud can also indicate a good area of support of the resistance.
Take a look at the chart.
This is a weekly chart of the S&P 500 mapped against the Ichimoku Cloud (Standard Settings)
Ichimoku 7 Point Analysis
I mapped the Chart back to the year 2000 so we can visually compare the last recession ending in 2003, with the current recession. How does price compare with the Ichimoku cloud on both of these occasions? The findings are extremely interesting!
- September 2000, the Price Bars broke through the Cloud resistance signaling a market in decline.
- The Market enters into a 3-year bear market, finding resistance 3 times in late 2002 and 2003.
- In August 2003 the S&P500 breaks out of the Ichimoku Cloud and moves vigorously into the New Bull Market.
- Moving forward to November 2007, the market enters the cloud from above and the ensuing Bear market takes hold.
- August 3rd, 2009 the S&P enters the cloud from below. this is a potentially Bullish sign, but can really only really be confirmed when the index breaks out upwards through the cloud and moves higher on stronger volume.
- On the volume pane (middle panel) we see that on both occasions the bottom of the market took place on reducing volume.
- We also see the MACD Histogram (weekly), has remained bullish since entering the cloud in 2009 as it did in 2003.
The Ichimoku cloud is an excellent way to visualize at what stage the market is in.
The market participants have not fully committed to a Bull Market yet, although the recovery since March 2009 has been impressive. An exit from the Ichimoku cloud upwards will be seen as a very positive sign. This perhaps explains why at this very time the market seems to be volatile. It is decision time and only the market will tell us the way.
Note : The Chart on this article is provided by Freestockcharts.com. This is in my opinion the finest free charting tool on the web. It has support for a huge number of indicators and trend lines. Check out this tool and the award winning Telechart 2000 on the Worden Brothers Inc. Website website.
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