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VWAP Reversion Algorithms: 1932-Present
The JPM gnomes co-located in the basement of the NYSE building at 10 Broad Street must have had their adding machines on overdrive in 1932 because after that July low, the Dow would never trade below -24% of VWAP measured from that low. In fact, you could have made some major market calls by following the support and resistance lines of the VWAP percent deviation, the most recent of which was the March 2009 low, which came in at -22%.
For a larger chart, a detailed explanation and a Dow prediction, see this week’s Chart Junkie at Wall St. Cheat Sheet.
We look forward to real time calls in the distant future.
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Update 1:53 pm: The fractal nature of the VWAP reversion gnomes is alive and well as we just hit yesterday's closing VWAP.
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For those of you wondering - VWAP stands for Volume Weighted Average Price.
Gee I wonder if GS and their HT department might be "screwing" around with this indicator.
I doubt it has much value given the volume games people now play.
DBL
I'm curious as to the reason 1932 was chosen.
Why not start in 1928?
According to the MIDAS Method, you run the VWAP line from the start of the trend. You could run a VWAP line from the 1929 high, but it was not relevant after the high was taken out in 1955. For simplicity of presentation, only one VWAP line is shown though, according to MIDAS, we would run others from interim bottoms. We'll probably show this in a future update. See here for more information:
http://www.precisioncapmgt.com/free-resources/#MIDASmethod
Nice work EB. Puts things in perspective.
At first blush looks like the GS Trading Algorithm...