Reprinted from our weekly Chart Junkie submission at Wall St. Cheat Sheet.

The anchored VWAP line in blue provided good support over the years, including the 2002 low after the tech bubble crash (8).  However, price clearly broke through the line at times, most recently in March 2009 (9).  The lower panel plots the percentage deviation of price from the VWAP line, beginning from the July 1932 low.  Interestingly, the % deviation to the down side has never exceeded the -16% to -24% support area, the lower end of which was precisely hit this March (-22%).  This support level also caught the major low in 1974 (5) as well as some early lows in the 1930’s (1, 2 & 3). 

Just as the yellow horizontal lines can act as support or resistance, so can the green trendlines.  The 1966 top came after a break through major trendline support (4) and retest of the 110% level.  On the 2000 top (7), there was no upward retest and this did mark the high.  Eventually, the current rally will peter a bit, and we would expect a long period of sideways action until the far right green downward trendline is finally broken.  Unfortunately, this could take years (points 5 to 6 span eight years). 

What will be the high of this rally?  We would expect it to come on a test of one of the two far right green trend lines.  If price were to continue up at the same pace, this would be at Dow 10,700 or 12,500.  However, if the trend slows or stops altogether, these figures will be less of course.  We will definitely be keeping an eye on this indicator for some time.  For background on the powerful support that anchored VWAP can provide (a component of the Paul Levine MIDAS method), please see our Free Resources page (includes free TradeStation indicator).