VWAP “From the Event”
Volume Weighted Average Price (VWAP) “from an event” often gives us valuable insight into the psychology of the market. For recent IPO’s, I find the VWAP from issue date is often a key level to be aware of as potential support or resistance. Last week I pointed out the potential for resistance in $BABA near the VWAP from IPO and today we saw that the VWAP from IPO in $GPRO was tested. For BABA, a short term pullback developed at this level. For $GPRO we may see resistance, but we will only know after the fact if it is actual resistance. Doesn’t it seem like a good level to be aware of?
Anytime you consider buying or selling a stock answer:
1- Where has it come from? If a stock has expended a lot of energy to get to where it is then it may be due for a consolidation or pullback. This is where you want to assess where a stop would go if the market disagrees with your timing. This is the basis of our percieved risk. For GPRO, the stock has rallied over 10 points (over 20%) in the last two weeks AND they reported “news” today. Ever hear the phrase “buy the rumor, sell the news? Certainly other participants were positioned for something bullish..
2- Where does it have the potential to go? For a long trade that means we want to identify any potential levels of resistance where people may be tempted to offer out enough stock which would slow the advance. This is the basis of our perceived reward. With the VWAP from the IPO having been tested today this may become an area of resistance.
3- Does it make sense to purchase here based on the perceived risk/reward ratio? For GPRO, I think the answer is NO. If you are looking to buy GPRO I would give it some time to settle down. For BABA, the stock has begun to settle down and this is a better candidate to study on shorter timeframes for a possible entry.
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