How to Pick a Bottom on a Chart
Hey there, VWAPians!
Yesterday you watched as I stalked JD.com (JD) after earnings, and I’m so happy many of you made money shorting that early downside VWAP break.
Earnings reversals are my favorite patterns to trade, outside of upside VWAP breaks on the Invesco QQQ Trust (QQQ), and you witnessed exactly why on Monday.
However, did you know that later in the day, well after I finished LIVE trading, JD actually turned into a profitable BULLISH position for eagle-eyed VWAPians?
What’s more, the after-hours and pre-market levels I hype up so much once again came back into play, proving definitively that EVERYTHING I SAY IS IMPORTANT.
So today, I’ll drop a few Knowledge Bombs on how to spot a bottom on a chart, and make sure you’re in this room at 9:30 a.m. ET each morning to witness all my majesty in action.
Knowledge Bomb: You Can’t Pick Bottoms, Bottom Pick Themselves
Tricked ya, Blanche!
I said I’d drop a Bomb about spotting a bottom on the charts, but the fact is, you can’t pick bottoms – bottoms pick themselves.
BUT – while it’s impossible to pick a bottom, there are often CLUES as to where a beat-up stock MIGHT stage a turnaround…
To start, I’ve been preaching for some time now that levels that emerge in pre-market and after-hours trading often come back into play during normal trading hours.
We saw exactly that with JD yesterday.
Toward the end of Monday’s 9:30-10:30 a.m. ET LIVE trading hour, you can see JD shares ultimately bottomed around $62.50 – which coincided with the shares’ pre-market lows (shaded in the chart below).
1-minute JD chart on Aug. 23, 2021 – courtesy of Thinkorswim (TOS)
I’ve also been preaching that whole and half numbers tend to be significant – and $62.50, around JD’s bottom yesterday, was no exception.
These levels tend to become even more significant towards the end of the week, due to options expiration and “pinning” to strikes, which are priced in whole and half-dollar increments. However, that doesn’t mean they can’t come into play on a Monday, like we saw with JD here.
Another potential clue that JD was off its lows? The classic VWAP “buttcrack” pattern.
See that ‘W’-looking pattern around JD’s floor yesterday? That’s what we in the VWAP biz like to call the “Kardashian bottom” – and it can often be seen just before an upside VWAP break.
And speaking of upside VWAP breaks… As alluded to earlier, eagle-eyed VWAPians nimble enough to switch teams could’ve made some change on JD, had they bought shares or long call options when it broke back above the 1-minute VWAP.
In conclusion, while you have to let bottoms pick themselves, there are several clues that can tell you when the worst of the selling might be over, including if the stock:
- Is dancing with pre-market or after-hours lows
- Is approaching a whole or half number
- Just made a “buttcrack” pattern beneath the 1-minute VWAP
But nothing is ever guaranteed, so make sure you collect those profits in stages, and keep ABSORBING THE VWAP MAGIC by watching me do it LIVE at 9:30 a.m. ET each day right here!
Kenny “The Warlock” Glick
August 24 2021
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