Hey there, VWAPians!
Thanks again for joining my team! I think you and I are gonna have a long and prosperous relationship, and hopefully we have a little fun along the way too.
For those of you new to the VWAP world, the best way to learn the nuances of my trading methodology is to watch me do it live. You can find me on the Money Morning Live show starting at 8:30 a.m. ET, and then the REAL fun begins with my LIVE TRADING HOUR at 9:30 a.m ET right here.
BUT, if you aren’t able to dedicate your ENTIRE life to me (your first mistake, IMHO), you can always catch replays here, and I’ve dedicated this newsletter space to breaking down the most important lessons and takeaways for my VWAP disciples.
By the time I’m done with you, you’ll be hunting and navigating your own nimble day trades based on VWAP, which is, after all, the only trade you’ll ever need!
So, let’s get this party started with a timely lesson on THE play for earnings season (aka – my quarterly Christmas!), which will start to pick up steam after companies like FedEx (FDX) got the ball rolling late last week.
Earnings season is the VWAP’s time to shine, after all, due to the increased VOLUME (a key factor in Volume-Weighted Average Price, if you didn’t piece that together).
And as a nimble, liquid day trader trying to go where the money’s going, well, VWAP is where the money’s going; volume is literally money, in this case, and there’s about to be a lot of it next week!
Knowledge Bomb of the Day
If you’ve watched me trade live, you’ve certainly heard me drop more than a few “Knowledge Bombs” during my broadcast…
Things like “Never short the QQQs,” and “Right side of VWAP, right side of the trade, right side of LIFE.”
As I said, though, the Bomb I want to focus on today is one that’s near and dear to my heart, and one that aptly commemorates the start of earnings season: If the stock gaps down on bad news and then BREAKS BACK ABOVE THE VWAP, it’s time to be a buyer.
This is one you should heed not only because of all the juicy earnings volatility we’re about to witness, but also because it’s an excellent one to dip your proverbial toes in as a new-to-VWAP trader.
Of course, nothing is ever guaranteed in the trading game, but I have yet to find anything that works as well and as often.
In fact, what I’m about to show you is a pattern I’ve seen work dozens of times already in 2021, and it’s why I’ve been trading VWAP exclusively – no other indicators – since 2012.
No matter what the headlines say – they could read “Company XYZ Replaces Board With Hangry Toddlers!” or something similarly insane – I’ve found that I never want to be short stocks breaking back over the VWAP, especially after an earnings report.
Stocks that gap lower usually find buyers, as we saw with JPMorgan Chase (NYSE:JPM) last quarter.
There was a knee-jerk reaction to the upside on JPMorgan earnings, with the shares finding a pre-market top around $155.60… and then BOOM, the stock rolled over and broke the 1-minute VWAP (blue line), ultimately sliding to about $151.25.
Because JPM opened so much lower than it closed the previous session, there would be a visible gap if we were looking at a daily chart with no pre-market action visible, hence the terminology.
I marked the key pre-market price points with my red horizontal lines (I use the Price Levels drawing tool in Thinkorswim), which helps pre-set my RANGE – about a $4 range, in the case of this JPM example.
JPM 1-minute chart (with pre-market) after earnings in April 2021
Once I have my range, the VWAP tells me what side of the trade to be on.
And even though JPM fell at the open, retesting those pre-market lows out of the gate (those levels usually come back into play in the regular session), it ultimately broke back above the 1-minute VWAP around 9:33 a.m.
Had you simply played just THAT VWAP break, buying JPM shares at $152 and setting a partial stop at the 1-minute VWAP (because you should never sell your entire position at one price!), you would’ve been up more than a buck when the shares hit $153.20 about five minutes later.
If you trade 1,000 shares at a time, that’s a cool $1,000 before the first cup of coffee (or your eighth, if you’re anything like me) is drained.
So heading into next week, be on the lookout for this earnings gap pattern, and look for some or all of these names to crop up on my Warlock Watchlist around their upcoming reports:
- Bed Bath & Beyond (BBBY)
- Constellation Brands (STZ)
- General Mills (GIS)
- Micron (MU)
- Walgreens Boots Alliance (WBA)
And remember – the VWAP cannot be manipulated because the VWAP is the market.
Let VWAP validate your day-trade ideas this earnings season and thank me later.
See you bright and early tomorrow!
Kenny “The Warlock” Glick
6 responses to “THE VWAP Play for Earnings Season”
June 25 2021