Today we take a look at long-term trend strength in North American markets using a great trend tool, Ichimoku Cloud, with weekly charts. Ichimoku is only available on the latest beta version of Incredible Charts (Help >> Upgrade To Latest Beta Version), but will soon be released with Incredible Charts 7.0.
Ichimoku offers a number of trend signals:
- The trend is upward when price is above the Cloud (and downward when price is below).
- A green cloud indicates an up-trend, while a red cloud indicates a down-trend.
- Long trades are taken when the blue line crosses above the red. In strong trends, blue may hold above red for extended periods.
The S&P 500 encountered resistance and is consolidating below its target of 1950*. The trend above a green cloud is further strengthened by the blue (Tenkan) holding above the red (Kijun) for an extended period. Continuation of the up-trend is likely and breakout above 1950 would signal an advance to 2000.
* Target calculation: 1850 + ( 1850 – 1750 ) = 1950
Dow Jones Industrial Average displays a similar strong trend with few blue (Tenkan) dips below the red (Kijun) line. Breakout above resistance at 17000 would signal an advance to 17500*. Reversal below 16500 is unlikely, but would warn of another correction.
* Target calculation: 16500 + ( 16500 – 15500 ) = 17500
The Nasdaq 100 recovery of blue (Tenkan) above the red (Kijun) line offers a fresh entry signal. Resistance at 3800 is unlikely to hold and follow-through would confirm the target of 4000* for the advance. Reversal below 3700 is unlikely, but would warn of another correction.
* Target calculation: 3700 + ( 3700 – 3400 ) = 4000
Another indication of trend strength is the CBOE Volatility Index (VIX), currently trading at levels last seen in 2005/2006, which indicates low risk typical of a bull market.
