Stocks + Ichimoku

Monday 29th April 2013.

I now assess stocks, and the stock indices, against their Ichimoku Cloud charts as well as against my own traditional charting software. I have found that the Ichimoku Cloud, with its broader zones of support and resistance, can offer great benefit to the analysis of stocks, especially as stock price approaches support and resistance levels. The examples given below show I use the Ichimoku charts, in conjunction with my traditional charts, to assess stocks and the stock indices. I hope that these examples enable you to see the benefit of combining the Ichimoku Charts in analysis of stocks along with the more traditional charting tools.
S&P500:
May is just around the corner and this month comes along with the mantra of ‘Sell in May and go away’. The S&P500 daily chart is warning of a possible pause, or even pull back, so I am being cautious over the next week or two with my stock and option trades as I wait to see if there are any further signals suggesting a pullback.There was a bearish Tenkan/Kijun cross on the S&P500 daily chart a few days ago:

The only two other such crosses in the last 12 months resulted in pull backs for general risk appetite.

S&P500 update May 21st 2013:

A weak bearish signal was noted on the S&P500 at the end of April, as discussed above. That involved a bearish Tenkan/Kijun cross but it was above the Cloud. These bearish signals are not deemed as strong as crosses that occur below the Cloud though. In fact, it was only a few days later when this weak bearish signal faded and a stronger, bullish Tenkan/Kijun cross was noted. Bullish crosses like this that occur above the Cloud are deemed to be strong signals:

S&PdailyCloud (1)

A later print of this S&P500 Ichimoku chart reveals the relative strength of a signal that is deemed as a ‘strong’ Tenkan/Kijun signal.  Note the enduring nature of the ‘strong’ signal received in Mid October compared to the previous weak or neutral signals:
S&PdailyCloud (2)
Stocks:
The following examples are of stocks that I was recently assessing using my traditional charting software but in conjunction with the Ichimoku Cloud. The Ichimoku Cloud, for the most, simply adds extra confluence to my traditional analysis. It has though, on a few occasions, pointed towards some warning signals that would give me pause before rushing in to take any trades. The case of AAPL, my first example below, is one such stock in this latter category.
AAPL: I have had Apple trading in a bearish ascending broadening wedge for some time now:

My charts revealed a BUY signal when price finally broke through the $400 back in December 2011. The charts also gave a SELL signal in October 2012 and this came with a daily support trend line break:

The Ichimoku chart for Apple tracks very closely to my own charting. December 2011 shows a bullish Tenkan/Kijun cross and October 2012 shows a bearish cross:

The point I note here too is that there are no bullish signals yet and price is still trading below the Cloud so, I wouldn’t be jumping in LONG here just yet. I’d rather wait for confirmation!

Update for AAPL as of May 21st 2013

My conventional charting package showed a potential bullish trend line break towards the start of May:

AAPL

 

I decided to check this breakout pattern against that of the Ichimoku Chart. I noted on the Ichimoku chart that the resistance zone was somewhat more broad than the finite descending bear trend line of my own charts. I noted too how that Apple had not yet been able to break up through the Ichimoku Cloud. In fact, a convincing break of the Ichimoku Cloud did not really set in until August:

AAPLichi

The ‘take away’ learning for me from this exercise has been to cross check my conventional stock charts and any breakout patterns against the Ichimoku charts to assess for confluence. In the case of AAPL I am now aware that there may be more potential upside given the trend line break. I would be waiting for a close above the Ichimoku Cloud though before taking any LONG trades on AAPL.

CAT: CAT has broken down from a weekly triangle pattern but is being held up by $80 support:

 

A bearish signal came through on the Ichimoku chart as CAT bounced off the triangle trend line. CAT is now trading below the Cloud and without giving any new bullish reversal signal just yet. Thus, I’d be very wary trading Puts here unless you are happy to be assigned shares as it may still have further to fall. The stock might bounce back from here but I’d want to see clear signs of this first:

Update for CAT as of May 21st 2013:

CAT has continued to hold up above the $80 support but has yet to break up through the Ichimoku Cloud. Thus, I’d still be wary that this stock may continue to pull back.

MCD: This stock made a bullish triangle breakout in January:

I note that there was a bullish Tenkan/Kijun cross on MCD just prior to this breakout:

EBAY: I have been selling Puts on EBAY for some months now as this stocks trades within a trading channel. I had been happily selling Puts at levels below the trend channel:

I note on the Ichimoku chart for EBAY though that there has been a couple of bearish Tenkan/Kijun crosses lately and price is trading below the daily Cloud. I definitely won’t be selling Puts on EBAY under these circumstances:



CPB: I noted a triangle break and a buy signal back in Aug 2012 with CPB:

The Ichimoku chart reveals a bullish Tenkan/Kijun cross just prior to August :


TGT: I noted a bullish triangle break for Target back in late February:

I now can see that there was a bullish Tenkan/Kijun cross for Target a little earlier than that though, back in January:

YUM: this stock has been trading in an ascending triangle for some time now. Put selling under the trend line may have seemed safe:

I now note that YUM has given a bearish Tenkan/Kijun cross AND is trading in the Cloud. I’d be wary selling Puts here unless you want to own the stock:

PEP: I noted a bullish triangle break for Pepsi back in mid February:

I also now note that Pepsi gave a bullish Tenkan/Kijun cross just prior to that, in mid January:

 

MSFT: I am long this stock and watching as it attempts to break through the $32 level which is a strong S/R level. This can be best seen on the monthly chart:

 

 

I note that the Ichimoku charts showed a bullish Tenkan/Kijun cross back in late January and price has rallied since then. Price is also still trading above its daily Cloud.
The $32 level may prove to be too much resistance, especially if there is a wider negative shift in ‘risk’ appetite. I own MSFT from $28 so will be locking in some profit with stops.
INTC: This stock gave a bullish triangle break back in mid April:

 

 

I note that INTC gave its latest bullish Tenkan/Kijun cross back in March so this sort of dove tails in with what I am seeing here:
AVP: I have been watching and trading AVP as it trades within a triangle pattern:

 

 

I note that AVP gave a bullish Tenkan/Kijun cross in January at about the time that I got my signal. price is still trading above the Cloud.
NUE: I was assigned this stock recently after a bout of put selling. The triangle break and bearish signal has bothered me though.

 

The Ichimoku chart shows how NUE had traded above the Cloud since about last October. Price is now below the Cloud and there has been a bearish Tenkan/Kijun cross here as well:
The weekly chart of NUE shows how this has been trading in a range between $30 and $50 since 2009.
This may well be heading back to test the bottom edge of this range again. Thus, I’m glad I sold my assigned shares and I will look for opportunities to enter back into this stock, with bullish strategies, once signals to that effect return. I do not want to be holding stock or selling Puts on stocks that are trading below the daily Ichimoku Cloud.
ABX: This stock has been hit hard by the pull back with Gold. There have been other issues for ABX as well though. I had a sell signal last November that I wish now I had used to buy Puts on ABX back when it was trading around $37.

 

It is interesting to note that a bearish Tenkan/Kijun cross occurred in October and that ABX moved below its Cloud in November. This augers well with my earlier observations.
ABX is still trading below the Cloud and there hasn’t been a bullish Tenkan/Kijun cross I won’t be looking to jump in LONG here just yet. I’m on the lookout for any bullish reversal though!
DELL: I received a signal to LONG DELL back in December last year. I bought Calls on DELL that are doing well!
I now note that the Ichimoku charts gave a bullish Tenkan/Kijun cross back then too. I also note that a bearish Tenkan/Kijun cross has just evolved as well. I will lock in some profit on the trade.
MU: I noted a bullish triangle break and buy signal on this rather volatile stock late last December:

I now note that the Ichimoku chart gave a bullish Tenkan/Kijun back then as well and that price has traded above the Cloud since then and without any other bearish signals yet: 

ADBE: I spotted a bullish triangle break on this stock last December. Sadly, I only traded this via Naked Puts but now wished I’d bought Calls!

 

I also now note how the Ichimoku chart gave a bullish Tenkan/Kijun cross back then and how price has traded above the Cloud since then and without any new bearish signal as yet:
JNJ: I spotted a bullish triangle break with JNJ last July. There was also one of my own TS signals on JNJ back in January this year:

 

I am interested to see that bullish Tenkan/Kijun crosses occurred at both those time as well:
Conclusion:
I will continue to include Ichimoku Cloud assessments of my stocks before taking any trades. My preference will always be to only take bullish trades on stocks where price is trading above the Ichimoku Cloud. Conversely, I would only take bearish trades on stocks where they were trading below their Ichimoku Cloud.