Last week, I introduced you to a complex but valuable indicator: Ichimoku clouds.
Cloud charts show you the state of the market “at a glance” — the literal translation of Ichimoku.
Now, you probably won’t be able to interpret these charts “at a glance” for a while. It’ll take time to make sense of all the moving parts.
But once you master this tool, you can use it to get a quick read of any stock, sector, or market out there.
It all comes down to the three key components I’m about to show you…
Today, let’s break down a bullish Ichimoku cloud chart — and then put your new skills to the test…
Your 3-Point Checklist
Every day, I look at hundreds of charts. These days, almost all of them are bearish.
But I was surprised to find a few bullish Ichimoku cloud charts in my search…
Especially because they were ETFs with exposure to China. Take a look at this chart of the Global X China Consumer ETF (CHIQ).
At a glance, we can see this chart is bullish.
That’s because the price (black line) is above the clouds (red- and green-shaded areas). This is noted as Point 1 on the chart.
Point 2 shows that the turning line (blue line) is above the standard line (red). This is also bullish. As I wrote last week, the turning line is a moving average that uses 9 bars of data. The standard line uses 26 bars.
In this case, the turning line is the faster of the two. The standard interpretation of two MAs is that the fast line shows the signal. When it’s above the slow line, it’s a buy. When it’s below the slow line, it’s a sell.
If you’re looking at a chart and you don’t know which line is faster, look at the one that has more “wiggles.” (Sorry if that’s too technical a term…)
Faster lines have more volatility, and therefore have more wiggles. Slower lines are less volatile, so they appear smoother. You don’t need to know how the lines are calculated — just look to see which one is wigglier.
Lastly, turning to Point 3 on the chart, this is the lagging line. It’s the closing price shifted 26 bars back. When the lagging line is above the clouds — as it is here — that’s bullish.
Look at this as a confirming signal. Don’t place a trade based solely on the lagging line. If both the price and the lagging line are above the clouds, you’ll have your buy signal.
Can You Read This Ichimoku Chart?
Now that you have your 3-point checklist, give this next chart a glance.
This is a cloud chart of the Invesco QQQ Trust (QQQ). QQQ is an ETF that tracks the Nasdaq 100, an index of tech stocks.
Take a look and see — is this chart bullish or bearish?
If you said bearish, you’re correct.
The price and lagging line are both below the clouds, and the turning line is below the standard line. This all screams bearish.
Most ETF cloud charts look like QQQ, of course. That’s because we’re in a bear market.
Soon, this bear will end. Ichimoku charts could help you find buys in the new bull market, whenever it starts.
Michael Carr, CMT, CFTe
Editor, True Options Masters
Editors’ note: The newest addition of our True Options Masters team, Andrew Keene, has been using Ichimoku charts all year long…
And by combining them with one other unusual factor, he’s managed a 72% win rate buying ONLY CALL OPTIONS in a bear market.
If you ask Andrew, all credit goes to his Shadow Scanner system.
And his followers are reaping the rewards…
At 9:30 a.m. EST, they join Andrew in his live Trade Room… And sign off just one hour later with gains like 97%, 92%, and 95%.
Want in? There’s good news…
Andrew’s about to open the Trade Room to True Options Masters subscribers for the first time ever. Only 1,000 members can join to start — and hundreds have already signed up to be notified when it goes live.
If you want to join them, hurry and put your name here now.
Chart of the Day:
By Mike Merson, Managing Editor, True Options Masters
Despite record-high inflation reports month after month, the U.S. dollar is STILL eating everyone’s lunch right now.
Stocks, bonds, crypto, and other currencies alike… none of them are performing as well as the almighty greenback, even as it’s losing nearly 9% of its value annually.
Just take a look at the chart above, of the Japanese yen against the buck. It’s breaking down to 23-year lows.
This is especially troubling as the yen is viewed as one of the safe haven currencies. It’s performed well during hard economic times, as we can see in the ~50% move higher from 2007 to 2013.
That trend appears to be ending now, as the Bank of Japan broke from other central banks and maintained its loose monetary policy despite inflation.
This chart is telling us to stay bullish on the U.S. right now. It may not seem like it, but it’s still the best — if not only — game in town.
Managing Editor, True Options Masters