Guest Post: Weekly Kumo Break Suggests Long Term Structure Changing

Tyler Durden's picture

Submitted by Chris Capre of Second Skies

Weekly Kumo Break Suggests Long Term Structure Changing

For those of you who are familiar with the Ichimoku Kinko Hyo (One Glance Balanced Cloud Chart), one of its strengths is in communicating when major long term trends are beginning and ending.  This can either be done through the TKx signal (Tenkan-Kijun Cross) or a Kumo Break (cloud break).  Based on our Ichimoku analysis, we suspect the SPX is headed for much lower ground as an event that has happened only twice in the last 8 years has just occurred, a weekly Kumo Break.

One of the unique aspects of the Ichimoku Kinko Hyo is the ‘Kumo’ which often contains instruments in trending environments.  When broken however (especially on longer time frames), it often signals a major reversal.  How has the SPX related to the Kumo in the past?  Since June of 2003, the SPX has maintained 81.2% of its time above the Kumo and only broken it once back in mid-Jan 2008 (when the market had started its major reversal).  Until now.

Two weeks ago during the panic sell-off in the major indices, the Kumo was broken but the market failed to close below it which is often a trigger.  The last time the market closed below the weekly Kumo (Jan. 18th, 2008), it did not close above it for another 87 weeks.  This prior close back in 2008 marked the beginning of a major bearish move down from the break at 1401.25 to a low of 666.79 (a 737.46pt move). 

Looking at the chart below, last weeks close in the SPX marked the 2nd close below it in the last 8+ years.  To us, this is very suggestive the technical structure (from an Ichimoku perspective) is decidedly bearish considering the rarity or uniqueness of this event and the SPX’s ability to hold above the Kumo for such a long time is no longer there.

What is also interesting to note is the time it took for it to break back below the Kumo after regaining the air above it back in late August 2009.  The fact it had such a long run above the Kumo from June 2003 – Jan 2008, was below it for 1yr and 6mos, then above it for only 2yrs, only to break back below it suggests the underlying weakness of the larger term structure. 

Furthermore, the rate at which it fell from the recent highs back in May of this year to now was far more violent than back in 2008.  It is ironic to note that the time it took to go from the highs back in 2007 (week of Oct-12th) to breaking the Kumo (week of Jan-18th) in 2008 was a 13 week process…the same amount of time it took for price this time to reach the early May highs this year (week of May-6th) to the Kumo break this year (week of Aug-12th)…again a 13 week process. 

Ironic perhaps, regardless, it’s rare instruments like this with such a long history above the Kumo, break it on the weekly time frames, only to resurface back above it.  The combination of the recent violent sell-off, along with the historical Ichimoku perspective on this, and the long term structural outlook has turned quite bearish.  We expect the index to remain below it for some time, likely the end of the year with perhaps a small retracement back towards the 1220 region capping any rallies. 

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TruthInSunshine's picture

Stay the hell away from the complete and massively rigged markets unless you simply want to gamble.

Actually, I really did just insult Las Vegas just now, as they at least can tell you your odds, and they don't suck at the teet of the taxpayer trough in order to keep inflicting sucking chest wounds on Main Street & The American Taxpayer.

Shit's about to get real. Like Donkey Kong (Great job, Ben Bernanke, Hank 'Tanks in the Streets' Paulson, Timmmmay Geitner, Larry 'Jabba' Summers and the rest of the cast and crew of DEEPLY CAPTURED GOVERNMENT [and a bagman for Wall Street Federal Reserve]).

Heck of a job, boys!!!

Wall Street Aristocracy Got $1.2 Trillion in Fed's Secret Loans

FunkyMonkeyBoy's picture

I don't see many Americans getting out of their recliners, turning off the TV and putting down their cheeseburgers to go out on the streets to protest against this outright criminality by their rulers... so, things can't be too bad.

FLIP THAT BOND's picture

I don't see how this is a gamble..equities go down until QE3 and PMs go up until the end of the USD.  It's really simple.

TruthInSunshine's picture

Forgot to mention, just one more string in the ball of yarn that is Obama's total and complete DEEP CAPTURE to financial concerns - here's the man who has brought Hopelessness & Pocket Change to America, Progressives (Free At Last, Free At Last):


Attorney General of N.Y. Is Said to Face Pressure on Bank Foreclosure Deal By GRETCHEN MORGENSON 45 minutes ago

Attorney General Eric T. Schneiderman of New York is under pressure from the Obama administration to drop opposition to a state settlement with banks over foreclosure practices.

smlbizman's picture

i thought i had a little more time before i had to learn chinese......fuck!

max2205's picture

I broke wind in my kimono

nmewn's picture

To be in SDS or not, that is the question ;-)

Goldtoothchimp09's picture

I agree with the author of the article about the level 1220 ... anywhere over 1200 you should be safe to be in SDS - bear markets produce violent short squeezes...we've seen a few nasty ones already... just buy SDS near big resistance levels after a multi-day short squeeze

r101958's picture

Interestingly, Kuma (one vowel difference) in Japanese means 'Bear'.

machineh's picture

'Kumo' is how Rush Limbaugh used to pronounce the surname of the governor of New York -- the father of the current governor.

treemagnet's picture

When this ponzi breaks anybody long trying to get out will be like a scared little girl on a greased slide trying to slow down.  I really feel for the average Joe and Jane about to get fucked like they've never imagined...way to go Ben and the boys. 

SumSUN's picture

Everyone holding long yeah for sure.  A lot of people invested in stocks only know buy and hold, then sell.  I've been doing great with puts on MAC, RRGB, etc.  and long SLV.     


Thinking of buying some SVM calls.   And more puts.

Landrew's picture

Puts on Mac and RRGB, these stocks trade very low volume. I trade only the most active Dow, then I can trade in 400/600 contract volumes. I have been looking a MCD considering it has not corrected or broken down YET and it will as they all do. Even good equities are sold when the margins are called. I just sold my CSCO and GE puts for a very nice pop. Any one else trading put options of volume?

SumSUN's picture

picked up puts on Verizon before the close.  Much more liquid than MAC and RRGB and it's good to be trading in liquid stocks i agree...

I think it is a good strategy to go after the ones that haven't come down as much.  Like DNKN haha.

DeadFred's picture

I looked hard at VZ for that reason but shied away because the Google Motorola deal seems to have some upside for Verizon. I was afraid of holding puts when some article gets posted about how Verizon profits weregoing to soar. I think the consumer stocks that did so well pre-crash (all those that RobotTrader liked so much remember) might start taking bigger hits now that people are starting to believe this is not just a 'soft patch'. Then again I know several of people on food  stamps and assistance who still have their Iphones and unlimited data plans because <true story> you can't play online poker without a good data plan. How long will it take before the consumer discretionaries take their fair share of this crunch?

Bring the Gold's picture

Not that I don't agree with you that I-phone + unlimited data is a luxury and one that shouldn't be bought by someone unemployed...buuuutttt the far bigger question is when are the bankers, bond holders and associated psycho/sociopathic trash gonna take THEIR fair share of this crunch? Preferably the crunch to take the shape of falling into a metal stamping machine ala Terminator 1.

DeadFred's picture

I wish I could give a better answer than "when pigs fly" or one that involves crowds carrying pitchforks storming the banks. I hope someone smarter than me comes up with a third way.

Prometheus418's picture

How long will it take for discretionaries to feel the pinch?  Maybe longer than you think- this guy has a great "boots on the ground" blog about Argentina's hyperinflation and collapse

One of the things I would never had considered was his observation of people wasting money on what he characterizes as "afforable luxuries" such as cell phones, loud car stereos, and other less-than-important items.  His take on it was that people were trying to preverse some face and sense of self-worth by having at least one or two unimportant gadgets that they could flash in public, and that makes a lot of sense to me.

Hell, I've seen plenty of that just living in a relatively poor area, and it didn't require any massive inflation or collapse.  I can't even count the number of young people I've seen driving $500 cars with $1200 rims and $2000 stereos in them.  They're just peacocking in any way they can to try and lay claim to social status they don't really have.

The financial landscape is going to change- there's no doubt about that.  But it's equally certain that basic human nature will not- people will continue to do things that spit in the face of rationality in order to feel good.  Doesn't matter if it makes logical sense or not- it's just how people are.

jerry_theking_lawler's picture

they are $1200 rims and $2000 radios, but did they buy them or 'rent' them......

no kidding, you can rent rims and radios......thanks to the fantastic american banking system.

i had a friend right out of college when money was starting to 'slosh' around that had a great saying when he wanted something and didn't have the money to buy it...... "Fucking Finance It!!"

**don't know where he is today but i bet he is probably the CEO of a major corporation today, and i'm just a lacky engineering manager....

DeadFred's picture

EMC is fairly liquid and has made me happy. Aug $27 at .44 on July 20 just closed at 6.72, and it has only about 2 cents bid/ask difference. It's not a bad company but it's getting trashed in the sell offs. When the margin calls come in I guess they keep aapl and sell the non-headline companies. Other then that just index ETFs, but those have done nicely. I bought some real wild puts before the debt ceiling "deal" that went crazy. Mind boggling stuff, I need to remember not to get used to it.

Spastica Rex's picture

Cryin' won't help you, prayin' won't do you no good, 
Now, cryin' won't help you, prayin' won't do you no good, 
When the ponzi breaks, mama, you got to move. 

TruthInSunshine's picture

Very good. One of the very best and most highly underappreciated rock songs of all time, and some LZ's best work:

when the levee breaks/led zeppelin - YouTube
SumSUN's picture

My buddy and I were talking about this technical indicator two days ago....  We don't know much about this kumo cloud analysis, but wow, thanks for this Tyler.  I'm going to have to look into this a little more.

DonutBoy's picture

It's a nice chart - but I don't know what to make of it when the Chairsatan prints money and congratulates himself on the Russell 2000 level.

I wonder what a Kumo chart of the SPX in gold would look like.  That should tend to null-out the Fed's confessed attempts to manipulate stock price levels.

treemagnet's picture

Help needed,

Anybody know why the yen strengthens like it has, cause I don't.  I know the answer is obvious - but I don't see it, BOJ does crazy shit, yen goes up....why?

The Turdman's picture

This might help.....

A towering national debt, a revolving door of prime ministers and an export-driven economy limping slowly from its worst economic slump since World War II – Japan’s got it bad.

So why is the yen trading at 15-year record highs?

A number of factors have combined to pump the yen up to 83.36 per dollar on Tuesday, the highest since May 1995.

First, to set the scene:  In June 2007, the yen was trading at 122.64 against the U.S. dollar – its highest level in five years. Then the U.S. subprime loan market imploded. Japanese who invested in other currencies with higher yields – known as “carry trades” – brought that cash back home as other currencies, particularly the dollar, was hit by the crisis.

The yen’s natural strength lies in the country’s trade surplus. Cars, electronic goods and other Japanese products sold abroad brings a healthy stream of yen back home. Add to that the influx of cash investors brought back to Japan as the global economy crashed, and the yen continued to strengthen.

Another factor: Countries and investors diversifying away from the dollar in the wake of the crisis were looking for a safe investment, and the yen was a popular choice. Most notably, Beijing has been snatching up a record number of Japanese government bonds instead of U.S. ones.

t0mmyBerg's picture

I would say it is because they have deflation, hence yen increases purchasing power over time, but I am not sure because they have such a high level of internal financing.

Jafo's picture

It is the Japanese insurance companies selling their US Dollar assets to pay for the reconstruction after the earthquake that is causing the relentless rise of the Yen.  After they sell US Dollar assets they have to buy Yen in order to take the money home.  The Japanese government is not helping out by printing the Yen.  Apparently they are afraid of inflation (?????)

Ungaro's picture

JPY is strong because it is perceived as a "safe haven" due to the high savings rate in the land of the rising sun. EUR is doomed and in the longer term, so is the USD. The world is diversifying out of USD and EUR assets. Who are you gonna call? Shitsurei itashimasu!

gwar5's picture

Dollar going down. Euro going down. Everybody looking for safe harbors. Japan trying to devalue themselves, but can't stop it. Buy gold.



gwar5's picture

Dollar going down. Euro going down. Everybody looking for safe harbors. Japan trying to devalue themselves, but can't stop it. Buy gold.



Mongrel's picture

Unless someone named Cleetus Jones replaces the Bernanke within a week, I fear there will be a revolution in the streets . . . Just sayin', the gents are getting pissed.

Gibu The Great's picture

Futures are green, so obviously this is bullish.  

vast-dom's picture

You mean the green numbers in the chart?

vast-dom's picture

oh yeah that's real deal green right there -- markets will bounce way up and life will be better than ever ;)

vast-dom's picture

"We expect the index to remain below it for some time, likely the end of the year with perhaps a small retracement back towards the 1220 region capping any rallies. "

This concluding statement, given the chart above, is, much too restrained. This thing could go down to mid 400s!!! plummeting way below the Kumo Karma and Sutra -- this mother is going under precisely because of the precipitious slopes and violent recent sell-offs. 

But I'm only going off the charts, ultra-bleak investor psychology and wretched fundamentals, or lack thereof, notwithstanding.


PS And TD et al take a gander at the sharp upswing in Asian markets just now! Something is BEYOND stinky over there.

macholatte's picture

PS And TD et al take a gander at the sharp upswing in Asian markets just now! Something is BEYOND stinky over there.

Maybe it's possible that those are the first markets to open upon the Libya news. It's possible they see an end to one of the wars and an end to that waste of resources for USA and EU as well as possible stability in oil prices, if not lower oil prices, so maybe they think it's all good. But that might be too logical and obvious so there's something else going on, like maybe Biden left Asia and they can crawl out from under all the bullshit and breath.

gwar5's picture

Fuck me! And sumimasen my Japanese..... but this Kumo Break is another flat out Durdenism, Bitchez!


I'm seriously impressed. I even think I like this death knell the best. Only at ZH.

So, big downturn in the S&P. Confirms my fortune cookie. Everyone plan accordingly.

To recap: Death Cross, Kumo Break, and The Hindenberg Omen. 

And all along I thought the One-And-A-Half-Deschmettie was the bomb.

Thanks Tyler. Another Durdenism for the books.  

(for newbees, take Tyler seriously. I'm just kidding, but Tyler does not.)

PhattyBuoy's picture

"the One-And-A-Half-Deschmettie"

I used to do that off the 3 meter diving board ... right before I did the The Triple Lindy ...

HowardBeale's picture

Speaking of violent short squeezes: Watch Hewlitt Packard sell its computer division (<15% of business) for $35 to $40 billion. That's going to hurt a few shorts...

TzaristBondHolder's picture

and the share price down 20% on a day.....we do not need to wait for a crash.  We are watching one in a slow motion

silver is money's picture

Once Chikou Span breaks down Kumo area (where you see Senko Span A + B ) that also suggest more down side to come.

TzaristBondHolder's picture

According to market Geometry  the next leg down should be 1.61 x prior down =737 x 1.61= 1137.  What will be left of the S&P then?


mt paul's picture

Kumo bears 


Wall st walrus ...


do the math...

hungarianboy's picture

The real change comes when Span and Span B crossed. For now it's a break but will it have a follow trough??????