If you have read my earlier posts on Ichimoku Cloud, you would be familiar with the term “one glance” by Kinkō Hyō. If you have not read it, here is the link to part 1 and part 2. Ichimoku is really simple, easy and effective to use. It is recommended to have a least a basic understanding of Ichimoku Cloud so that you would appreciate some of the terminologies and technicalities used in this article.
Since Singtel has rallied over the past few days, I thought of doing a technical analysis using Ichimoku to kind of get a quick sense on whether a trend reversal has occurred. Do note that the timeframe for this is in weeks, hence this analysis will be for the medium to long-term outlook. Here is a snapshot of the chart and let’s see what can we gather from a single glance. If you know a thing or two about Ichimoku, it’s a good practice for you to see what you can identify from the below diagram in a single glance.
Price position relative to Kumo Cloud
The first thing to notice is… as you have guessed it, prices are STILL BELOW Kumo cloud. This means that Singtel is still on a downtrend. The plane is still flying below the clouds and it has not broken through the clouds yet. Prices MUST be above the clouds for the plane to soar high without resistance. It has not happened yet but what you can see is that prices are approaching a HUGE Kumo cloud that is hovering above its head. The last time price was this close to the clouds was in late 2017, when it attempted to break through but failed.
Thickness of Kumo Cloud
The thickness of the cloud tells us two things: firstly, the strength of the resistance. Secondly, the volatility of a stock. The Kumo cloud represents the 3rd line and 4th line of defence after Tenkan-Sen and Kijun-Sen. A thick cloud means strong resistance and high volatility while a thin cloud means weak resistance and low volatility.
The Kumo cloud that Singtel is facing ahead (in a few weeks) does not look thin to me. This means that if the plane manages to break into the thick cloud, the vision of the pilot would be blurry, there would be turbulence and consolidation is likely to happen inside the cloud before making a breakout upwards or retrace back below the cloud.
Resistance at Senkou Span A
That is provided if it manages to break into the cloud. Remember the Kumo cloud is made up of Senkou Span A and Senkou Span B. Senkou Span A is actually the third line of defence to breakthrough and its the mid-point price between Tenkan-Sen and Kijun-Sen projected 26 periods ahead. To put it the other way, the price point of Senkou Span A is around $3.24 and this figure is the price between the short-term bias indicator (mid-point price of past 9 weeks) and medium-term bias indicator
(mid-point price of 26 weeks).
Is Kumo Cloud ahead Green or Red?
Next, the Kumo cloud serves as a leading indicator and it acts like our future eye. It makes projection 26 periods ahead based on current price action. If we want to go long and be right about it, the Kumo cloud 26 periods ahead MUST be GREEN. However, the cloud we see ahead is still RED. To illustrate, try to imagine that you are a captain on a ship and you are using a telescope to monitor the weather conditions 2.6 km ahead. You are deciding if your ship should charge ahead at full gear by observing whether there are choppy waves and thunderstorms or whether its a calm & peaceful sea.
*Do take note that this strategy is very different from value investing or the 52-week low strategy which I have previously written about. It would be quite unlikely that prices are at its 52-week low but yet the Kumo cloud ahead is GREEN. By the time you see GREEN clouds ahead, prices have probably surged as they have already broken past all resistance levels. The advantage is that you get higher confidence that the downtrend is over and you are not catching a falling knife. This is the trade-off between gaining assurance of an uptrend and getting in at low prices.
Trend Reversal? Kumo Twist + Kumo Breakout
What about trend reversal? Is Singtel headed towards a reversal? There are usually 2 signs that signify a trend reversal in Ichimoku. The first is a Kumo Twist and the second is a Kumo breakout. Senkou Span A is currently below Senkou Span B which is why the cloud is shaded RED in color. A Kumo twist is when the Kumo cloud starts narrowing down and Senkou Span A begins crossing over ABOVE Senkou Span B. When this happens, the cloud would turn GREEN and its a bullish signal.
Why is that so? This is because Senkou Span B is the mid-point price of the 52-period time-frame. In this case, since our time-frame is in weeks, the Senkou Span B is the MIDDLE price of the 52-week high and the 52-week low. When Senkou Span A crosses ABOVE B, it means that the momentum and trend are going up as we are now above the 50% mark of the 52-week high and low. From the above diagram, there is no sign of Kumo Twist yet.
The 2nd sign is a Kumo breakout and its probably one of the strongest signals in Ichimoku. This is because a Kumo breakout means the price has broken through ALL 4 LINES OF DEFENSE. (Tenkan-Sen > Kijun-Sen > Senkou Span A > Senkou Span B). Again, we have not seen this yet and the greatest challenge that lies ahead for Singtel is diving head-on into the Kumo clouds. If prices manage to break out above the cloud, it is a Kumo breakout and that is a bullish sign.
That’s about it for clouds. The next thing to look at is 2 bullish signals that happened under bearish territory. The first one is the TK crossover or Tenkan-Kijun cross. This happens when the Tenkan-Sen crosses ABOVE the Kijun-Sen. It simply means the short-term momentum (9-period mid-point price) is higher than the medium-term momentum (26-period mid-point price). However, this is a WEAK BULL because the TK cross happens BELOW Kumo clouds.
Kijun-Sen crossover is another very powerful and reliable signal that is really easy to use. A KS cross simply means price manages to cross ABOVE or BELOW the Kijun-Sen line. This is usually a strong sign that trend reversal is around the corner. This is because Kijun-Sen is the mid-point price of the past 26 weeks (6 months). What we are saying is that prices are going HIGHER than the mid-point price of the 26-week high and 26-week low. Furthermore, you can see that for the past few months, every time when prices touches the Kijun-Sen, it acts as a very strong resistance to push prices back downwards. For the FIRST TIME since Singtel’s downtrend, it has managed to cross over HIGHER than the Kijun-Sen line. However, the KS cross happens at the bearish territory. Nevertheless, KS cross is a powerful indicator and we are seeing the first sign of hope.
Chikou Span Position
Chikou Span serves as a confirmation bias to us. It is simply the current price today pushed back 26 periods backwards. The reason is because for an uptrend to be intact, prices should make higher highs and higher lows. This means that the Chikou Span should be ABOVE prices that are 26 periods ago. To put it another way, if the Chikou Span is ABOVE prices 26 periods ago, it simply means the current price today is higher than the price 26 periods ago. However, what we are seeing for Singtel is that the Chikou Span is floating around the candlesticks. When this happens, it means the market is still under consolidation as the price today is no different from the price 26 periods ago or 6 months ago.
Chikou Span Breakout
Chikou Span breakout can be used together with Kumo breakout. It provides an ADDITIONAL confirmation that it is on an uptrend. However, the Chikou Span of Singtel is still hovering around the candlesticks and you can see the distance is still quite far away from the Kumo clouds. It will probably take a few months later for a Chikou Span breakout to happen, that is if Singtel reverses to an uptrend.
In conclusion, there are several mix signals that we have identified. But the overall big picture for the long-term is that prices are still below the Kumo cloud, meaning that it is still on a downtrend. But under bearish territory, there are 2 bullish signals that occurred which is the TK cross and the KS cross. KS cross is more powerful and reliable than the TK cross. However, since these 2 bullish signals happened beneath the clouds, the strength of the bull would be negated to a certain extent. Chikou Span tells us that the market is still consolidating in the medium-term bias. Until Chikou Span goes ABOVE prices, then it would become our 3rd bullish signal that a reversal is coming. Lastly, the price of Singtel has broken through the first 2 lines of defence (Tenkan-Sen and Kijun-Sen). It is now going to face the Kumo cloud which is the 3rd and 4th line of defence. The resistance of the Kumo cloud is stronger than the resistance of Tenkan-Sen and Kijun-Sen. It needs high volume, high momentum, high buying strength to penetrate through the clouds. But if it successfully does that, then that will mark the start of a bullish uptrend. Till then, the impending challenge ahead for Singtel is facing that thick Kumo cloud hovering above its head.