Millionaire Reveals Top Trade Idea Each Week CEO, Jeff Bishop, shares his top pick for the week each Monday, straight to your inbox.

“My strategy aims to help you pull one winner out of the market each week, regardless of market conditions!” – Jeff Bishop

There’s a good chance you’re hurting after that brutal start to the week.

Markets around the world cratered as the Chinese yuan fell below a key level, ratcheting up trade tensions between Beijing and Washington another notch. As if we needed that!

U.S. stocks sold off heading into Monday’s open, and by the time the bell rang, they were significantly lower than where they closed Friday.

As I told my Daily Profit Machine members, this serves as a valuable lesson (or perhaps reminder) on the danger of holding positions overnight or through the weekend, especially in a market as volatile and news-driven as this one. When one tweet can rock your whole portfolio, the reward does not outweigh the risk.

That is why I tend to stay all cash overnight and through the weekend. It’s wasn’t an easy lesson for me to learn. I got burned plenty in my earlier trading days trying to outsmart the market and I still have the urge to swing trade from time to time.

In fact, I got one of those urges on Friday with Twitter (TWTR). I had planned to buy call options on the stock, but it ran up too fast and I missed the trade. I thought about putting on a swing trade over the weekend, but stopped and said to myself, “Davis, you know better!”

And thank goodness I listened! The stock opened down nearly 3%, and I stood to lose much more on the leveraged call options I might have purchased. Plus, I probably would have spent the whole weekend worried about a position that I couldn’t do anything about.

While I sometimes trade individual stocks, my trading vehicle of choice is SPY, the ETF that tracks the S&P 500.

Over the weekend, I told you that I would be watching SPY’s 50-day simple moving average (SMA)  to guide my trading. The ETF closed just above that line on Friday, and I warned that if SPY broke it to the downside on Monday, there was room for a gap down to $280.

As I fired up my trading screens on Monday morning to put together my Trade of the Day, overseas markets were awash in red. My indicators were extended to the downside to the point that I thought a bounce might not be possible and a continued drop would be all we saw. Sometimes indicators get extended in one direction and just stay that way. Monday morning was one of those times.

Given everything I was seeing, the choice to go with a put option for the Trade of the Day was a no-brainer. Of course, that’s the easy part…

Each day, I narrow down the hundreds of options on SPY into a single trade that I think will offer Daily Profit Machine members the most bang for their buck. On Monday, I selected the SPY August 9 288 Puts, in part because there was a high level of open interest at that expiration/ strike combination. This provides liquidity, which helps traders move in and out of their positions quickly.

SPY opened Monday 1.6% lower, slicing through the 50-day SMA level I told you about and never looked back. Shares hit a low of $281.73 for the day, making a good deal of headway toward my $280 downside target.

As for the SPY August 9 288 Puts, those who heeded my Trade of the Day alert had a chance to make up to 62% by 10:30 a.m. ET. And that, of course, is the goal — to get in and out quickly and avoid the risk of holding a position overnight, because who knows what the next day will bring on the news front.

From a chart perspective, I am now watching the 50-day SMA (red line in the chart below) as resistance and the 200-day SMA (white line) as support. 

My downside target remains $280, which is 1.4% below Monday’s close. 

I’ll be looking to leverage that move into double-digit (or possibly even triple-digit) profit potential with my Trade of the Day like I did on Monday. There’s still time for you to get in on today’s trade… if you act fast.

If SPY can hold $280 and remount it, we could see stocks rebound. But if it breaks this level to the downside, there could be a lot more pain in store for the bulls.

America’s #1 Premarket Trader,
Davis Martin

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