The cloud for these charts is constructed purely from the price and then projected forward, while the lagging line (blue) line is the price shifted back. It is then how the price and this lagging line interact with the cloud that tells us where we are. Above the cloud is bullish and below is bearish and the cloud provides support and resistance in each of these states respectively.
Now if you were a fund manager and had called a bear market in mid 2000 when the lines crossed below the cloud and then called a bull market in autumn 2003 when both lines crossed back above…and these were the only two calls you made…well basically you would be considered a demi God in most investment circles. So for a bear market, we need the price and lagging line to move to about 5,800 points or worse and stay there for a week or so. It’s that simple!
