Lots of data last week, lots of earnings in the coming weeks.
The set-up has been the same all year: bad fundamentals but good technicals. Will this change? I take a look this week using a narrated slides approach because it allowed me to get through a lot of information a lot more easily. I know I have gotten mixed feedback on this in the past. You still feel that way?
Importantly, how are you feeling about the set up to risk going into this big time of catalysts? Would love to hear your thoughts. I also want to hear your questions. Next week I plan to do a reader Q&A note where I answer the questions you send in. It only works if you send in questions.
I already got a question from a loyal reader this week (hat tip Francisco) who asked about the Ichimoku charts that I like to use and how one should read them. Great question. Here are a couple of links to consider but I will summarize them and add my own flair: https://www.investopedia.com/terms/i/ichimoku-cloud.asp and https://www.fidelity.com/learning-center/trading-investing/technical-analysis/technical-indicator-guide/Ichimoku-Cloud
The full name of the Ichimoku chart is Ichimoku Kinko Hyo which translates into “one look equilibrium chart”. The chart is trying to get across as much information as possible in one chart. There are five components to the Ichimoku chart and I will put the names in plain English instead of the Japanese names: leading span A, leading span B, conversion line, base line and lagging span. These are essentially moving averages with Span A looking at 26 periods and span B looking at 52 periods (can use the same chart for hourly, daily, weekly etc). The conversion line looks at 9 periods and smooths out current price. The baseline is 26 periods as well but looks at now. The Leading spans take the moving averages and shift it forward by 26 periods to create the cloud. The lagging span takes the moving average and shift back 26 periods.
The simple idea is that when Span A moves above Span B the trend is positive (and vice versa). When price (or more importantly the smoothed base line) moves above the cloud this creates, it is even more positive (and vice versa). When the cloud is flat and/or the base line is in the cloud, there is no signal and nothing actionable to do. Some look at the cloud as support and resistance and when baseline hits, they make short term trades. For me, that is a market in flux with no strong signals.
A good friend who wrote a book on technical analysis and is a good follow on social media - Rick Bensignor - gave me the heads up that I should watch the lagging span relative to the cloud. Especially for stocks, when this held support or resistance at the cloud, it was a very powerful signal with low risk of error whereas the baseline has more noise.
I have used this since my days in FX and Asia. The Japanese invented technical analysis. For many markets outside of equities, technical analysis is all we have. I think it is additive to the overall approach. I think the Ichimoku shouldn’t be used on its own and that is why I also look at MACD and RSI along with it, as well as consider intermarket analysis and sentiment analysis. I find the wholistic approach serves me best.
Hope that helps (not just Francisco but everyone). Look forward to more questions.
Stay Vigilant
So many things, so little time