Last week was a big week in Fed-land, but then Trump trumped the markets.
On Wednesday afternoon, the Federal Reserve released the minutes from its July FOMC meeting, after which it announced it would be lowering its benchmark interest rate by a quarter percentage point.
The minutes showed policymakers were actually more divided over rate policy than was apparent by the 8-2 vote. And an emphasis was placed on the need to be flexible with rates in the future.
Stocks held up following the news, as traders seemed much more interested in strong earnings from the likes of Target (TGT) and Lowe’s (LOW).
Then, on Friday, Fed Chair Jerome Powell gave a much-anticipated speech from the Jackson Hole Economic Policy Symposium.
Stocks looked set to move higher after Powell’s comments on the future of interest-rate policy… and then came the Tweetstorm.
President Trump called for U.S. companies to “start looking for alternatives” to China and Tweeted, “We don’t need China and, frankly, would be far better off without them.”
This was in response to tariffs China plans to place on an additional $75 billion in U.S. goods. Which was a response to Trump’s threat to increase tariffs on an additional $300 billion of Chinese goods. And round and round we go.
While the Fed news was something traders could plan for, there’s no way to predict when economic policies will hit Twitter or some other major news will rock the market.
I can handle trading through any type of market-moving news — good or bad — because technical analysis is at the heart of how I select my Trade of the Day.
For those who are unfamiliar with it, my Trade of the Day represents the single option trade I believe is the best bet for your money on a given day. And it’s been wildly successful.
Just check out the profits that could have been yours so far in August.
As you can see, it was a good week for us and an even better month!
I want to walk you through my favorite trade from the past week. From the calendar, you might be thinking it’s Friday’s trade, which could have yielded profits of up to 250%.
Jenn booked a 97% return on her first Trade of the Day — in the time it took to walk her kids to school! Robert landed a 14% return in 15 minutes and Anson cashed out with nearly $900 when he had banked on making less than $300.
Oh, and one member is considering changing his 10-year-old son’s name to Davis. HAHA! I can’t say I’m not flattered.
These were just a few of the comments that came flooding in after Friday’s trade. But the trade I really want to show you was Tuesday’s…
Tuesday’s Trade of the Day in Action
Tuesday was actually a fairly flat day in markets — one of the few ones we’ve had all month. Yet, those who followed my Trade of the Day alert had the chance to make up to 63% in 20 minutes.
To select my Trade of the Day from the thousands of options out there, I wake up at 3 a.m. each day to analyze pre-market action. Over time, I’ve honed a three-step process to which I attribute my immense success:
- Analyzing overseas markets, particularly in Asia and Europe
- Analyzing market-moving data, such as Fed minutes, economic releases, etc.
- Analyzing the chart of SPY, the highly liquid ETF that tracks the S&P 500 and my trading vehicle of choice
After I have narrowed down my Trade of the Day, which includes the exact strike price and expiration, I deliver it to members 30 minutes prior to the market open. That plenty of time for members to get prepped and ready to pull the trigger, even if they work a 9 to 5.
As I said, I track overseas markets and potentially market-moving data. After that, I turn my attention to SPY’s chart.
Specifically, I look to answer these critical questions:
- Where do support and resistance lie?
- How does the previous day’s volume compare to the 90-day average volume?
- What pattern will I look for on that day’s chart?
Let’s walk through these for Tuesday’s trade, starting with support and resistance.
On Monday, SPY closed at $292.33. That was within the $3 trading range I pointed out last week between support at SPY’s 100-day simple moving average (SMA) at $290 and resistance at the 20-day SMA at $293.
Stocks fell in pre-market trading on Tuesday, and SPY immediately rejected the $292 level, which is a strike price. Strike price levels often represent metal support and resistance levels for traders.
I also pointed out that Monday had been a pretty flat day following an initial gap up. This produced a doji candlestick on the chart (blue arrow).
A doji candlestick is formed when a security has a nearly identical open and close, and it represents indecision. All else being equal, this indecision makes me lean bearish (i.e., buy put options).
Another reason I was eyeing a bearish trade was SPY’s volume.
I have found that comparing SPY’s volume from the previous day’s trading to the 90-day average daily volume is a good predictor of which direction the market will open.
If SPY closes up and volume is above its 90-day average volume, I’ve found it to be a reliable way to predict a green move to come. But if SPY’s volume is below its 90-day average in the previous session, I approach the next day with caution.
On Monday, SPY traded about 53.6 million shares, which was well below the 90-day average daily share volume of nearly 71.8 million.
As for SPY’s chart pattern, I alerted members that I would be looking to trade put options applying a head and shoulders. This pattern is one of my favorite tools to time put option trades. If you’re not familiar with this bearish reversal pattern, you can learn more about it here.
Five minutes after the opening bell rang, I alerted members the head-and-shoulders pattern had triggered. I’ve highlighted it in the chart below.
After the pattern triggered, SPY headed south, and traders had a chance to book up to 63% on the Trade of the Day alert in just 20 minutes!
Technicals in action, folks!
The Trading Week Ahead: What I’m Watching
On Friday, SPY broke its 100-day simple moving average around $290 to the downside. I’d pointed to that level as critical support all of last week.
Heading into next week, the next level of support is $282, where you can see there is a triple-bottom made on Aug. 5, Aug. 7 and Aug. 15.
Should SPY break $282 to the downside, the next level of support is the 200-day SMA near $280. If that breaks, then look out below!
Of course, I’m not concerned about further downside. As Friday’s Trade of the Day proved, there are huge profits to be made in down markets.
Join me now so you can get Monday’s Trade of the Day in your inbox.
To make it even easier, I’ll alert you by text as well!
America’s #1 Premarket Trader,