ICHIMOKU TRADING STRATEGY DURING COVID-19 BUBBLE

Abstract

ABSTRACT We show that technical trading rules based on the midpoint of high and low values can time the bubble's entry and exit, which is unique to this paper and known in technical trading circles as the Ichimoku Cloud. We detect a possible new bubble in the U.S. stock market in real-time using the Backward Supremum Augmented Dickey-Fuller technique (BSADF) and find several bubbles in the U.S. stock market over 1973-2020, including a new Covid-19 bubble. Previous studies have shown this to date stamp bubbles in the U.S. in real-time from 1928-2008. The bubble is based on pure speculation rather than fundamentals, and it shows annualized returns of 32% during the Covid-19 bubble with a standard deviation of 8%. In comparison, the market showed returns of 8% and a standard deviation of 9%. FRED Indicator indicated a recession from January 2020 – October 2021. It performs similarly in previous bubbles such as Black Monday (1987), Dot Com (2001), and Sub Prime Mortgage (2008). We compare its performance to the moving average. The results provide the Ichimoku Cloud validity in being used alongside the moving average in momentum studies. Keywords Ichimoku, Cloud, Bubbles, Asset Pricing, BSADF