[9.5] Technical analysis with Ichimoku cloud and RSI

Maybe you are still unsure or find the methods and technical analysis still a bit confusing. There is a simple indicator called Ichimoku Cloud that gives clear buy/sell signals. This indicator is comprised of 2 lines and a patch which looks like cloud and drawn over the price chart.

Before, we proceed further,

Disclaimer: This article is for education only and not a proposal, invitation or advice to buy or sell shares.

In this Ichimoku, when the prices are above the cloud, it is bullish and the trend continues up until the prices drop below the cloud. The cloud is a bit lagging so there are 2 lines for the shorter term. As long as the prices are above these 2 lines, the trend is still up. Once the shorter line crosses below the base line (which actually is the 26 day moving average), it is a signal to take profits. However, if you are looking at the longer term, you may hold the trade until the prices drop below the cloud. So the cloud also acts like a resistance and support zone.

Here are a few examples of strong up trending stocks that we can use this indicator. Usually people who uses Ichimoku Cloud also uses RSI (Relative Strength Indicator) or the MACD Histogram to double confirm change of trend.

Chart of ABT

From the chart above, there is an oversold situation way back in early August (see purple circle inside RSI). Sure enough, price closed above the base line (26 day) which gave a buy signal. The uptrend was confirmed by end August when the faster (conversion) line crossed above the base line. 

Until the last 2 days (23rd Sept), prices were way above the cloud and also well supported by the base line.

Chart of MCD

This is by far a strong bullish trend till today. There was a buy-sell round from mid June until end July.  A next opportunity started from early August when the RSI hit the oversold line and reversed upwards which signal a trend reversal. By second week of August, the stock closed above the base line for a buy.

One may opt to close the trade in early September when it closed below the conversion line. If you are a stronger risk adverse person, you can still hold it until it fall below the base line. In this example, the stock was well supported by the cloud and did not fall below. So, the longer term trader may hold on if he uses the cloud as a final support.

Chart of PPL

This stock had an oversold situation in early August and a buy signal came in about mid August.

Until today, there is no sell signal yet amidst all the global bearish sentiments.

This chart is extracted from Stockcharts.com. The difference is the cloud turns from green to red when market is down. At time of posting, this stock is still green (uptrend) and well supported by the base line. RSI is still above the zero line so I guess there should be more room to run above.

 Chart of SO

In this stock (extracted from freestockcharts,com) the buy signal actually came in end of second week August. A box is drawn here to show the top resistance. Even this top was broken a week later and the trend is still strongly riding higher. Notice also the cloud is very much below which is sign of strong uptrend.

Further education

If you like to learn more on technical analysis, go to these sites.

STOCKCHARTS.COM

CHART PATTERNS Try this: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns CANDLESTICK Refer to: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:introduction_to_cand TECHNICAL INDICATORS Try stockcharts.com chart school. It is free education.  http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators

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