Ichimoku Clouds or Ichimoku Kinko Hyo

(This article is adopted from StockCharts.com for my own reference only)
Introduction:-
The Ichimoku Cloud, also known as Ichimoku Kinko Hyo, is a versatile indicator that defines support and resistance, identifies trend direction, gauges momentum and provides trading signals. Ichimoku Kinko Hyo translates into "one look equilibrium chart". With one look, chartists can identify the trend and look for potential signals within that trend. The indicator was developed by Goichi Hosada, a journalist, and published in his 1969 book. Even though the Ichimoku Cloud may seem complicated when viewed on the price chart, it is really a straight forward indicator that is very usable. It was, after all, created by a journalist, not a rocket scientist! Moreover, the concepts are easy to understand and the signals are well-defined.

 Calculations:-
Four of the five plots within the Ichimoku Cloud are based on the average of the high and low over a given period of time. For example, the first plot is simply an average of the 9-day high and 9-day low. Before computers were widely available, it would have been easier to calculate this high-low average rather than a 9-day moving average. The Ichimoku Cloud consists of five plots: 

Tenkan-sen (Conversion Line): (9-period high + 9-period low)/2)) 
The default setting is 9 periods and can be adjusted. On a daily 
chart, this line is the mid point of the 9 day high-low range, 
which is almost two weeks.  

Kijun-sen (Base Line): (26-period high + 26-period low)/2)) 
The default setting is 26 periods and can be adjusted. On a daily 
chart, this line is the mid point of the 26 day high-low range, 
which is almost one month).  

Senkou Span A (Leading Span A): (Conversion Line + Base Line)/2)) 
This is the midpoint between the Conversion Line and the Base Line. 
The Leading Span A forms one of the two Cloud boundaries. It is 
referred to as "Leading" because it is plotted 26 periods in the future
and forms the faster Cloud boundary. 

Senkou Span B (Leading Span B): (52-period high + 52-period low)/2)) 
On the daily chart, this line is the mid point of the 52 day high-low range, 
which is a little less than 3 months. The default calculation setting is 
52 periods, but can be adjusted. This value is plotted 26 periods in the future 
and forms the slower Cloud boundary.

Chikou Span (Lagging Span): Close plotted 26 days in the past
The default setting is 26 periods, but can be adjusted. 

This tutorial will use the English equivalents when explaining the various plots. The chart below shows the Dow Industrials with the Ichimoku Cloud plots. The Conversion Line (blue) is the fastest and most sensitive line. Notice that it follows price action the closest. The Base Line (red) trails the faster Conversion Line, but follows price action pretty well. The relationship between the Conversion Line and Base Line is similar to the relationship between a 9-day moving average and 26-day moving average. The 9-day is faster and follows the price plot closer. The 26-day is slower and lags behind the 9-day. Incidentally, notice that 9 and 26 are the same periods used to calculate MACD.

Analyzing the Cloud

The Cloud (Kumo) is the most prominent feature of the Ichimoku Cloud plots. The Leading Span A (green) and Leading Span B (red) form the Cloud. The Leading Span A is the average of the Conversion Line and the Base Line. Because the Conversion Line and Base Line are calculated with 9 and 26 periods, respectively, the green Cloud boundary moves faster than the red Cloud boundary, which is the average of the 52-day high and the 52-day low. It is the same principle with moving averages. Shorter moving averages are more sensitive and faster than longer moving averages.
There are two ways to identify the overall trend using the Cloud. First, the trend is up when prices are above the Cloud, down when prices are below the Cloud and flat when prices are in the Cloud. Second, the uptrend is strengthened when the Leading Span A (green cloud line) is rising and above the Leading Span B (red cloud line). This situation produces a green Cloud. Conversely, a downtrend is reinforced when the Leading Span A (green cloud line) is falling and below the Leading Span B (red cloud line). This situation produces a red Cloud. Because the Cloud is shifted forward 26 days, it also provides a glimpse of future support or resistance.
Chart 2 shows IBM with a focus on the uptrend and the Cloud. First, notice that IBM was in an uptrend from June to January as it traded above the Cloud. Second, notice how the Cloud offered support in July, early October and early November. Third, notice how the Cloud provides a glimpse of future resistance. Remember, the entire Cloud is shifted forward 26 days. This means it is plotted 26 days ahead of the last price point to indicate future support or resistance.

Chart 3 shows Boeing (BA) with a focus on the downtrend and the cloud. The trend changed when Boeing broke below Cloud support in June. The Cloud changed from green to red when the Leading Span A (green) moved below the Leading Span B (red) in July. The cloud break represented the first trend change signal, while the color change represented the second trend change signal. Notice how the Cloud then acted as resistance in August and January.

Trend and Signals

Price, the Conversion Line and the Base Line are used to identify faster, and more frequent, signals. It is important to remember that bullish signals are reinforced when prices are above the cloud and the cloud is green. Bearish signals are reinforced when prices are below the cloud and the cloud is red. In other words, bullish signals are preferred when the bigger trend is up (prices above green cloud), while bearish signals are preferred when the bigger trend is down (prices are below red cloud). This is the essence of trading in the direction of the bigger trend. Signals that are counter to the existing trend are deemed weaker. Short-term bullish signals within a long-term downtrend trend and short-term bearish signals within a long-term uptrend are less robust.

Conversion-Base Line Signals

Chart 4 shows Kimberly Clark (KMB) producing two bullish signals within an uptrend. First, the trend was up because the stock was trading above the Cloud and the Cloud was green. The Conversion Line dipped below the Base Line for a few days in late June to enable the setup. A bullish crossover signal triggered when the Conversion Line moved back above the Base Line in July. The second signal occurred as the stock moved towards Cloud support. The Conversion Line moved below the Base Line in September to enable the setup. Another bullish crossover signal triggered when the Conversion Line moved back above the Base Line in October. Sometimes it is hard to determine exact Conversion Line and Base Line levels on the price chart. For reference, these numbers are displayed in the upper left hand corner of each Sharpchart. As of the January 8 close, the Conversion Line was 62.62 (blue) and the Base Line was 63.71 (red).

Chart 5 shows AT&T (T) producing a bearish signal within a downtrend. First, the trend was down as the stock was trading below the Cloud and the Cloud was red. After a sideways bounce in August, the Conversion Line moved above the Base Line to enable the setup. This did not last long as the Conversion Line moved back below the Base Line to trigger a bearish signal on September 15th.

Price-Base Line Signals

Chart 6 shows Disney producing two bullish signals within an uptrend. With the stock trading above the green cloud, prices moved below the Base Line (red) to enable the setup. This move represented a short-term oversold situation within a bigger uptrend. The pullback ended when prices moved back above the Base Line to trigger the bullish signal.

Chart 7 shows DR Horton (DHI) producing two bearish signals within a downtrend. With the stock trading below the red cloud, prices bounced above the Base Line (red) to enable the setup. This move created a short-term overbought situation within a bigger downtrend. The bounce ended when prices moved back below the Base Line to trigger the bearish signal.

Signal Summary

This article features four bullish and four bearish signals derived from the Ichimoku Cloud plots. The trend-following signals focus on the Cloud, while the momentum signals focus on the Turning and Base Lines. In general, movements above or below the cloud define the overall trend. Within that trend, the Cloud changes color as the trend ebbs and flows. Once the trend is identified, the Conversion Line and Base Line act similar to MACD for signal generation. And finally, simple price movements above or below the Base Line can be used to generate signals.
Bullish Signals:

• Price moves above Cloud (trend)
• Cloud turns from red to green (ebb-flow within trend)
• Price Moves above the Base Line (momentum)
• Conversion Line moves above Base Line (momentum)

Bearish Signals:

• Price moves below Cloud (trend)
• Cloud turns from green to red (ebb-flow within trend)
• Price Moves below Base Line (momentum)
• Conversion Line moves below Base Line (momentum)

Conclusions

The Ichimoku Cloud is a comprehensive indicator designed to produce clear signals. Chartists can first determine the trend by using the Cloud. Once the trend is established, appropriate signals can be determined using the price plot, Conversion Line and Base Line. The classic signal is to look for the Conversion Line to cross the Base Line. While this signal can be effective, it can also be rare in a strong trend. More signals can be found by looking for price to cross the Base Line (of even the Conversion Line).
It is important to look for signals in the direction of the bigger trend. With the Cloud offering support in an uptrend, traders should also be on alert for bullish signals when prices approach the Cloud on a pullback or consolidation. Conversely, in a bigger downtrend, traders should be on alert for bearish signals when prices approach the Cloud on an oversold bounce or consolidation.
The Ichimoku Cloud can also be used in conjunction with other indicators. Traders can identify the trend using the Cloud and then use classic momentum oscillators to identify overbought or oversold conditions. Click here for a live example using the Ichimoku Cloud.

Petronas Chemical == Just off the starting block

The chart above is for Petronas Chemical, which is just listed in BursaMalayisa on 26th November 2010.
This counter attracts institutional investors and has so far displayed great resilience when it is traded above the institutional IPO price of RM5.20. The weaker institutional investors would have sold off at least part of their holding and the resilience may be due to the stronger institutional investors still willing to accumulate on weakness. This counter is very liquid as it has eight (8) billion shares issued. coupled with the recent IPO there is ample free floating shares ready to find stronger hands.
From the chart above there is a possibility of a temporary double top at RM6.39 and a support at RM 5.93.
Also to be noted is that it is trading within an uptrend channel. Since it is now near the lower side of the uptrend channel and near to the support of RM5.93 it maybe good and possible to buy at below RM 6 so that a profit can be made if it goes up and away from the lower channel.It may move up to challenge the double top at RM6.39. If it fails to break through RM6.39 then it should be sold, otherwise if RM6.39 is successfully penetrated it can go higher and the wisdom is to let the profit run.
Another possibility is that it may go below the support line. If this happens a stop out will have to be executed say at RM5.80
The above is just my guess.

Phases of market

Market Phases
All markets, and certainly the share market go through phases that can be identified.
You will find the four central phases of the share market to be accumulation,
distribution, expansion and contraction. I have included an example of each below:
Accumulation
Accumulation generally takes place in a low sideways trending market and also
during an uptrend. Accumulation often develops when a stock has finished a down
trend and the market has found equilibrium (similar number of buyers an sellers) At
this point there are often institutional and long term value investors that have interest
in the stock as it would often be undervalued at this time based on fundamentals.
Distribution
Distribution generally takes place in a high sideways market and also during a
downtrend. And converse to accumulation, distribution occurs when a stock has
finished an uptrend and is beginning or is now perceived to be over valued by the
institutional and long term value investors based on its fundamentals.
Often distribution happens when the stock is still in favour with the general
public/media etc which means there are still plenty of willing buyers in the market.
However the distribution phase is the worst time to be buying a stock as a downtrend
often follows.
Note: Accumulation and expansion phases on Union Pacific weekly chart.
Expansion
Expansion occurs during an uptrend when there is disequilibrium in the market and
there are many more buyers than sellers. The share price often increases
dramatically and quickly. I have included below an example of a share during an
expansion phase. In order to profit from the expansion phase we use analysis and
theories like trend lines, Dow and Elliot wave theory.
Contraction
Contraction occurs during a downtrend when there is also disequilibrium in the
market and there are many more sellers than buyers. The share price often
decreases dramatically and quickly. I have included below an example of a share during a contraction phase

   

Kuala Lumpur Kepong (KLK) deserves a hard look, now

Crude palm oil (CPO) price is rising in tandem with Crude Oil price. Arising from there, KLK has a good revaluation by investors recently. KLK is well managed and is at the moment in the right sector of rubber and CPO, which both enjoy buoyant commodity price currently.
From the chart above, the initial climb is more gradual following the long term support line of S1S2.
Recently, it went over-drive to form a steeper uptrend channel C1C2, with a small hook down now.
With this chart formation, it will be an opportunity to enter a buy order around RM21.90, shown by the horizontal support line.

   

Bursa Malaysia looks good for an up turn

Bursa Malaysia Chart on 30th December 2011 

The chart shows that Bursa has a good chance to at least turn up in the short term fom here.

This counter is co-related to the volume of the market. As the market is having good volume lately there is a good chance for this counter to turn up at least for the short term.

The three (3) arrows show in the MACD, RSI and Stochastic chart seem to confirm that what I observe is true. MACD is about to form the golden cross and both RSI and Stochastic are in the lower area.

So it will be a good strategy to buy on weakness from now and sell it off when it hit the resistance shown by the upper parallel line.