I have been mentioning the volume weighted average price (VWAP) for about 8 years and a lot of people have picked up on the usefulness of it from a short term trading perspective. In addition to day trading, the VWAP is also quite useful as a measurement of average price “since an event” The two charts of $AAPL below show the VWAP from Jan 1 and then from Jan 24 (date earnings gap lower) You can loosely interpret these moving averages as a consensus of value since the beginning of the year and since the earnings report.
On the first day of trading in 2013, people got excited and bought $AAPL but with a declining 50 day moving average (guilty until proven innocent) the sellers quickly regained control of the stock. Since the beginning of the year the VWAP has been tested several times and that area has acted as resistance (circled areas). You can make any assumption you like about evil algos in that area or whatever, but more important than who is taking action there is to recognize the potential for a shift in momentum in that area and then to act according to signals derived from shorter timeframes.
The chart below shows the VWAP since the gap lower after earnings. You can see that the VWAP since this event hasn’t been as meaningful as the YTD one, but it is an area which looks as potential support for the stock in the near term. The recent rally brought $AAPL up above the declining 50 dma and as pointed out in last Friday video, these rallies typically fail. Now the case could be made that $AAPL is in its “bottoming process” but we still don’t have good price proof of that yet. One milestone for the bottoming process will be if the buyers can regain control of the average price since the psychological shift which occurred after the earnings were reported on January 24.
Like any indicator, the VWAP can be used as a system to buy or sell, but I think they are best used as a reference point to compare price to and then drill down to shorter term timeframes to look for the actual evidence of a change in trend. The VWAP since earnings may be a place to look for support on AAPL, looking at traditional support and resistance levels and Fibonacci in that area will provide other clues.