Anticipating potential moves in WATT using multi-day VWAPs from the event
WATT (Energies Corp) popped up big after hours on on December 26th on news of a new technology they are making progress on. Quite frankly it doesn’t matter what the product is as long as the stock is showing volume and range, which it did after hours.
On the open you can see weakness that forms into a consolidation. Normally we get very bearish when a 1 day VWAP is broken to the downside on a stock thats gapping up. This still holds true in this scenario but you need to be aware of the potential significance of the one day in this particular scenario. Since WATT is such a lightly traded sock and the news so powerful, the one day and intraday VWAPs will be almost identical, thus the one day may hold less significance on day one of this move.
WATT at this time had a large short interest 20-30%. This is something you must be aware of. A large short interest can make a stock whip in both directions, but most importantly it can make it prone to a squeeze. Consider how you would feel if you were one of the shorts holding into this news. You’re most likely looking to cover to avoid getting steamrolled. As long as there is a clear top and lower lows are being made, you can feel safe that you may get a chance to cover lower at less of a loss. As a trader you want to be aware of this, as soon as lower lows stop being made, shorts may look to get out and the squeeze is on. Intraday and one day VWAP convergence here is providing us with a clear level to get long from once the higher low is made. From there you can see how the panic sets in and shorts can’t cover fast enough.
On day two of the move, we get more squeeze premarket followed by a consolidation, light breakout, and two nice T1 opportunities during the regular session. At this time your eyes should be on that double top at 33.50 where very heavy sellers appeared twice.
Day three we are now working with a few multi day VWAP’s that hold significance. As the 33.50 highs reject premarket, we see the one day VWAP broken, this is a very bearish sign, and if your aggressive, a short opportunity. Two more T1 opportunities followed in the morning which guided you into a beautiful breakdown below prior days support. From here, there was no reason to cover until we see the 2 and 3 day VWAPs providing heavy support. We talked earlier about why these VWAPS are so close in value and can be treated as one VWAP.
From this multiday bounce we find ourselves at another T1, less clean but still juicy as can be. To trade this T1 need to take into account the level earlier in the day and give some room in that area for sellers to join. This would have funneled you into the multiday VWAP break and pure destruction into the close.
Day four we can look to get short at that big multiday level, which now includes the 1, 3, and 4 days vwaVWAP converging in one place. If your playing it hotter term you can cover near vwap. If want to hold for a bigger move you can cover half at vwap and reload when it makes a higher low under the half number at 24.50. Holding for the move you’ll need to do your best to almost ignore that intraday VWAP. A good mindset to have in this case is consider which VWAP should hold more weight: the VWAP from the very start of this whole craziness, or the intraday VWAP on from the morning on day 4?
This rejection sent us on a nice trend down to the underside of VWAP