In my last post, Waiting
for the Cloud to Break we were on the verge of a break through the bottom
of the cloud. We got the break and it
rained. If you were prepared, you banked
some profits – so what now?
Many Ichimoku indicators are flashing bearish signals: price
broke down through the Kumo (cloud), and crossed below the Kijun, the Tenkan
and Kijun crossed (bearish), and the Senkou Span crossed from above to below.
So why not put all your chips on “red” and let it ride? Well, you could; but historically speaking,
it almost never seems to rain continuously for 40 days and nights after the
clouds break. Check out how much
oscillation there was through the cloud in 07 & 08. It might just be my psychological scars from
the failed 09 H&S talking, but I would expect no different this time.
As a DIY chartist (ht: Jack Damn), I find it offers a great
amount of flexibility when I would like to add, remove or edit settings. So this time, I’ve taken the SPX and put the
cloud to a log scale. Here’s the big
picture:
As of the drop today, I see an additional region of support
(see red zone) that was resistance in Sept 09 and has been support since. We are touching that support now:
Just as with linear technical analysis, I like to see the
price action retest the underside of a line – or in this case – retest the
underside of a cloud and fail. This
happened in 07 & 08 and I have no reason to think it will not happen again-
short of a black swan news event. So before
I put all of the chips on red, I’m looking for a July/Aug failed retest of a
bearish cloud – similar to that of Sept 08.
I look forward to doubling down then.
