I’m usually watching for notable gaps to the up- or downside out of the gate for these stocks, as it’s not uncommon to see a “Gap & Crap” (a gap higher and subsequent drop) or a “Dip & Rip” (a gap lower and subsequent bounce).
More specifically, keep your eyes peeled for these two patterns:
- The Finger of God: When a stock tests and is subsequently rejected at the 1-minute VWAP, you’ll sometimes see a quick & dirty sell-off, like we saw with Riot Blockchain (RIOT) a few months ago.
RIOT met up with the KNUCKLE of God in April
- The Checkmark of the Lord: Another name for the Dip & Rip, you’re looking for a stock that goes below the 1-minute VWAP… only to bounce off support at the multiday VWAP. That’s your first sign that the selling might be over already, like we saw with the ProShares Ultra Pro QQQ (TQQQ) – an ETF based on the Invesco QQQ Trust (QQQ) – recently.
TQQQ enjoyed the Checkmark of the Lord recently
In a nutshell, if it can’t get above the blue line, the sellers are in control.
On the other hand, always remember — stocks that report earnings and gap down usually find buyers! Nobody wants to be short post-earnings stocks breaking over the VWAP, Blanche!