Ichimoku Kinko Hyo Analysis on Singapore Car Taxes (December 2010)

Discussion of Singapore’s recent inflation seems to dominate dinner conversations these days. In
particular, the recent spike in COE prices is always in the conservational limelight.

While financial markets take a year end break, we decided to analyse COE prices from a different
perspective, by using an indicator we commonly use: the Ichimoku Kinko Hyo.

Ichimoku is an award winning Japanese trend following indicator that has been successfully
succe used in
nearly every tradeable market. It is also one of the primary elements of proprietary trading systems
developed at APF Trading. This indicator is distinctively identified by the “Kumo Cloud”, which is the
area between the blue dotted lines iin our charts below.

A widely used trading strategy for longer time frames (weekly, monthly) is the Kumo Breakout
Strategy,, which will be the focus of this article
article. As such, only 2 of the usual 5 lines are plotted: the
Senkou Span A and Senkou Span B B, which make up the Kumo. We will take a look at the 1991-2010
1991
prevailing quota premiums relative to the Kumo.

So what is this Kumo Cloud? While most technical analysts rely on support/ resistance lines provided
by Western indicators, thehe Kumo serves as key suppo support and resistance areas.
areas A thicker cloud
generally indicates greater volatility in prices, and is also a stronger support/resistance for prices.
Therefore, a breakout from this cloud usually brings about strong price movements in the direction
of the breakout.
Let’s take a look at Category A. The recent rally in COE prices is the most we have seen since the rally
from 1991-1996.
1996. The first break
breakout below the Kumo in 2000 resulted in a 85% drop in prices over 9
years. Notice how prices typically retrace back to the Kumo in a mean reverting manner,
manner but at no
point during the 9 years did price break above the Kumo.

COE price finally broke above the Kumo in mid 2010 and rallied 100%. This surge is at a faster rate
compared to the one in 1991-1996,
1996, and wee do not expect the same rate of increment to follow
through. While testing the all time highs, w
wee expect a mean reverting price action to occur in the
near term where price would gravitate towards the Kumo. In the longer term, our Ichimoku analysis
suggests that prices are skewed to the upside unless prices break below the Kumo.

The outlook for Category B is similar. The he recent rally in prices is the most that we have seen since
the rally from 1991-1994.
1994. The first breakout below the Kumo in 1999 resulted in a 95% drop in
prices over 10 years. Pricess finally broke above the Kumo in mid id 2010 and rallied 150%. Again, we do
not expect the same rate of increment to follow through and expect a mean reverting price action to
occur in the near term. For the Longer term, we maintain the view that prices are skewed to the
upside unless prices break below the Kumo. This bearish breakout can happen as we see the future
Kumo is thin, suggesting weak price support in 2011-2013.

Article written by APF Trading: APF Trading is a trading advisory firm offering clients Managed Forex
Accounts and advice on multi-asset
asset trading strategies, signals, trading systems, execution services
and trading platforms. The firm also conducts research and technical analysis with a focus on
Ichimoku Kinko Hyo and DeMark Indicators.