VWAP Break on an Earnings Reversal
There was only one stock you needed to be watching on the open yesterday.
I gave it to you in the Money Morning LIVE room before the bell… (the show is happening now).
And when my LIVE hour of trading started at 9:30 a.m. ET… it was time to pounce.
Aurora Cannabis (ACB) gave us an earnings reversal trade right off the open.
Punching In and Out of ACB
And this is a prime example of what I look for in stocks right after they report.
The trade took under 10 minutes to make a “day’s pay.”
All thanks to the wonderful world of VWAP.
Now, don’t miss me & VWAP in action… LIVE in the Money Morning LIVE room at 9:30 a.m. ET right here.
To prepare, you can view my rolling watchlist here, as well as my daily Warlock Watchlist at the top of ThisIsVWAP.com.
THE EARNINGS REVERSAL
All you need is one.
And yesterday, it was Aurora Cannabis (ACB).
Right off the open this was a buy.
And here’s why:
- Opened below the previous close (gap down)
- Crossed back above 1-minute VWAP
You know, I started that list of bullet points because I thought it was a little more involved and I wanted to make it as clear as possible.
Turns out it’s not very complicated — When a stock gaps down on earnings and breaks back above VWAP, we buy it.
That’s the gist of it, really, but let me show you one way I like to dig a little deeper.
After a company releases its earnings report, the stock tends to react.
Looking at the chart below, you’ll see the reaction in ACB after earnings.
I like to go into my charts and mark the reaction highs, lows, and any mid-points the stock may settle at (red lines on the chart).
These are now my “levels of concern,” or areas to watch for possible entries or exits.
All of this happens after the earnings release.
Chart: courtesy of thinkorswim
“Cool, Kenny, but so what? I just want to know when to buy the stock.”
YOU know when, Blanche! (If you don’t, keep watching and learning before jumping into trades).
We buy earnings stocks that gap down and break back above the VWAP.
Look at the chart below.
ACB was trading just below the 1-minute VWAP (blue line) before the open.
My entry was at $6.35 as it broke above VWAP… that also happened to be the middle level of support found after the earnings report.
Knowing where the levels are adds to my conviction when making these trades.
If ACB had been sitting just under the high, I would have wanted to see it break above that range to take the trade.
But in this case, ACB was breaking above the 1-minute VWAP and the midpoint at about the same level, so I jumped in knowing my next area of concern was $6.50 and up (room to take gains).
Chart: courtesy of thinkorswim
If THIS price, then THAT price.
And this, my friends, is why I spend a couple minutes or even seconds to mark a few price levels on my chart each day.
It’s not hard, but it helps me define the trade and know my risk ahead of time.
What do I mean by that… Have a plan – and stick to it, BLANCHE!
You should know when you are getting in – in this case, a move back above the 1-minute VWAP —
And when you are getting out.
Not only if you “win” on the trade, but also if it goes against you.
If you don’t know when you are wrong, you’re likely to become a bag-holder… and we VWAPians are a lot of things, but bag-holders ain’t one of them.
Know your outs, and never exit your whole position at one price.
I was taking some off as the ACB trade was going in my direction… and when it turned on me? I locked it up at about $6.60.
And honestly with this trade, it was a take the money and run moment.
The market was getting annihilated today… and I was sitting on a day’s pay about 5 minutes after the market opened.
“SO the market is getting annihilated… and ACB reported ‘bad earnings,’ and gapped down… AND we were supposed to buy it?”
That’s right, VWAPians. Because that’s what the VWAP told us to do.
Just goes to show you how much EBITDA really matters.
Now listen to me carefully — The earnings report doesn’t matter!
I don’t read it, I don’t care.
I watch the stock’s reaction and mark it on my chart (the red lines), then I watch the VWAP dance.
That’s the market telling me what is real.
And that’s all that matters… the market, VWAP, price, and volume… they are all one.
That’s about it for today.
But don’t worry, this isn’t the last time you’re going to hear about earnings reversals.
I’m going to keep digging in so you know what the heck I’m talking about when I pull a chart up and say it gapped down on earnings and it’s about to break VWAP.
Alright, VWAPians, now let’s stop chatting and start stalking our prey.
Join me LIVE at 9:30 a.m. ET for another great day of trading.
It’s going to be a fun one as always.
Check out my rolling watchlist here, as well as my daily Warlock Watchlist at the top of ThisIsVWAP.com.
Kenny “The Warlock” Glick
September 29 2021
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