According to Bank of America Merrill Lynch’s technical analysis team, the S&P 500 and the KBW bank index have breached important support levels on the Ichimoku cloud charts, and the VIX is now trading above cloud resistance.
In case you don’t know, the cloud is formed in the area between two “spans” (the red and green lines in the charts below) that in turn are determined by averages of the high and low points over short and long timeframes, similar to moving averages. Unlike moving averages with precisely defined levels of support and resistance, however, the cloud provides a nice “range” for these support and resistance levels.
Now, let’s go storm-chasing. Via Bank of America Merrill Lynch’s team of technical analysts:
Bonus cloud charts for key European equity bourses:
BAML’s key takeaway:
Putting these breaks together, along with the weaker cloud chart patterns for Europe, supports the case for a deeper equity market correction…our call remains for a continued correction with risk to 1300-1250 in the S&P 500, but we favour a summer rally and would look to buy dips.
Just try not to get rained on.