Ichimoku Analysis: Market still has room to fall

The market was down again today. However, this time I sold my DXD for some more profit. The market still has the potential to continue this decline, but it might bounce too. So with that I'm happy with this profit and I'll be back into some more DXD should it bounce higher. You can see there is some support at the 9700 level for the Dow. The DJIA closed again below the Kumo Cloud. The Blue Line (Tenkan) is also below the blue now. I really don't see much positive going on, so hopefully I'll be able to get back into DXD prior to a larger fall.

Back below the Kumo Cloud

The market ended the day in the tank, dropping 268 points. From an Ichimoku analysis standpoint, this put the index below the cloud again, for the second time in a week. I had sold out of my DXD earlier in the day with a profit, expecting the market to rebound. Instead it kept declining. I bought some more DXD about an hour before the close. Again, I'll need to keep a tight stop on this. This market is so choppy right now that if we regained all of today's loss on Friday I wouldn't be surprised. Nor would I be surprised if we dropped another 200. But again, closing below the cloud is a definite negative here, so I'm on the side of a continued decline.

Another negative Ichimoku sign

There has been yet another bearish Ichimoku sign, albeit a weak one. The Kijun (red line) has crossed over the Tenkan (blue line). Definitely a bearish signal - however it's occurred above the cloud, so its considered a weak sign. The Dow continues to trade within the cloud. After closing below the cloud, it did rebound pretty solidly for the past 2 days. So, we are sort of in a state of limbo here, although there are more negative signs here than Bullish ones.

My strategy here is to take profits in long positions and continue to add to my DXD but with tight stops, should the market start driving up.

Indices closed below the Kumo Cloud today - definitely a bearish Ichimoku signal

Today, the markets closed down and you can see that both the S&P and the Dow closed below the Kumo Cloud - a decidedly bearish signal. Breaking through the cloud either way is either a bearish or bullish sign - closing above the cloud represents a bullish one, below the cloud, a bearish one. Our markets continued their descent today giving yet another signal that we could see a continued decline. If you haven't bought some DXD yet, you might want to at least start adding a little, or at the very least taking whatever profits you have in stocks in which you are long.

I think that its worth noting here, that in the past 9 months, this is the first time we've closed below the Kumo cloud. I don't think that is a good harbinger..

Still negative Ichimoku charts - and a way to play it.

You can see that despite the fact that yesterday ended up slightly and we were up earlier today, the DJI charts are still looking negative. We have yet to experience the complete breakout of the red line over the blue one - however, the current pricing still remains buried in the Kumo cloud. To profit from what I'd anticipate will be a market downturn, I've bought some DXD - an ultra short on the Dow. You can see that chart is looking bullish - however, a weak bull as the blue crossing over the red is occurring under the cloud. With about 15 minutes to go in the market trading day, the Dow has just turned negative for the first time all day. Hopefully this is the start of an extended downturn.

downward market signs being given by Ichimoku analysis

I know, it's been a very long time with no post. My bad! Anyways, since last summer, things have been plugging away without much downwardness.

However, let's take a look at 2 graphs for the SPX & DJI.

Things are starting to break down on both charts, in fact it started yesterday. Both broke below and closed below the RED line. Also, the Chikou span is below the lagging prices. 2 negative signs. That being said, it could be a headfake - there is still no red surpassing the blue lines - that crossover hasn't happened yet. Looks like it's coming, however - but I wouldn't bet on it. Furthermore, even if that does happen, it's going to happen above the Kumo cloud though - so its a weak bear sign.

I think this is a good time to take any profits you have right now. It's best to be on the sidelines here until there is some definitive movement either way. The next bear signs are going to be if there is the red over blue crossover, or if there is further market decline and it closes below that Kumo cloud - which would be 9973 on the Dow or 1069 on the S&P.

7.11.2009 - Market Commentary - The Power of Ichimoku

If you were a doubter in Ichimoku charting, hopefully the past few weeks have either made you a believer or at least reduced some of your doubt! Going back to our post on 6.16.2009 - "Definitely not good news for bulls today as both the Dow and S&P closed with a bearish Ichimoku sign - both closing below the Kijun lines. I'm definitely going to pick up some short positions tomorrow, I think we have some more downside to this."

On 6.16, the S&P closed at 912 and the Dow closed at 8504. As of Friday's close, the Dow was at 8146 and the S&P was at 879. One of the down sides to the ThinkOrSwim charts that I post here is that they don't show the full cloud. Here is the formula for the 2 lines that form the cloud:

Span A = (Tenkan + Kijun)/2 for the past 52 sessions pushed out 26 sessions.

Span B = (Highest high + Lowest low)/2 for the past 52 sessions pushed out 26 sessions.

So you can see from the StockCharts.com that the S&P Kumo cloud is headed up while the S&P Index is headed down. This is important because when the closing price breaks through the bottom of the cloud, its another bearish sign. It really does seem like its going to be inevitable that this does happen and more decline is very likely.

I'm still long my SDS and DOG - both short ETF's on the S&P and Dow respectfully and short some Allstate (ALL). Long is no place to be right now.

This recent activity has really confirmed that the Ichimoku method is powerful and a great indicator. If you are interested in reading more about it and how to apply it - there is a book available for the Amazon Kindle here - http://tinyurl.com/nykgp5