A Primer on the Ichimoku Cloud Indicator

Abstract

We show that technical indicators engineered from the midpoint of high and low values over the short and medium timeframe have the predictive ability in the monthly cross-section of U.S. stocks. We use predictive regressions over 1967-2019 and t-statistics to test the null hypothesis that the indicators are not predictive. We find evidence that the Ichimoku cloud is highly predictive for short signals when the distance between the leading and lagging lines are below their median values in the previous day across all stocks. These excess returns hold for Fama and French 3 and 5 factors. These tests hold for additional sorts of the Ichimoku Cloud values in the lowest decile and quintile.