Tuesday, August 10, 2010

Monitoring VWAP for Opportunities

By the time the market opens in the morning, I have a short list of securities I want to watch closely. I watch for opportune times to enter or exit positions on my list. One thing I monitor closely is where stocks are trading relative to Volume-Weighted Average Price (VWAP). A lot of large players like pension funds and mutual funds have rules about where they trade relative to VWAP, but I'm not concerned about my activity influencing the market, so I'm using VWAP as a way to alert me quickly to interesting activity.

I created this landscape in Aqumin's AlphaVision™ software. The buildings represent the stocks that I'm watching today. They are organized by sector, and sorted by market cap, so the big companies show up in the bottom left of each sector. Color tells me how each stock is trading: green means it's trading up, red means it's trading down. The height of each building tells me, in real-time, how each stock is trading relative to its VWAP. Stocks above the landscape are trading at a premium to VWAP.

VWAP View ResizedR1

I'm interested in the outliers. Bank of America (BAC) and General Electric (GE) immediately stand out to me. They are trading above their VWAP, but are red so I know they are down on the day. If I were monitoring this data in a spreadsheet, I would not have this level context. With the AlphaVision™ visual landscape, I noticed immediately two major stocks that were bucking the general market trend. Watching this play in real time, I noticed a nice opportunity to get into these positions right as they started a solid recovery off their lows.

If you have a Bloomberg terminal and would like to watch this view update in real-time, visit the Aqumin webpage to download a 30-day trial of AlphaVision™ for Bloomberg 2.5. After you install the software, search for VWAP Deviation in the View library on the right panel.

Jason Javarone

The opinions expressed by the author are his alone, and do not reflect the opinions of Aqumin LLC, its shareholders, partners or affiliates.

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