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Charting the SP500 Outcome of Elections Past

Mon, Nov 5, 5:12 PM ET, by Corey Rosenbloom

With Election Day Tuesday and the market at a pivot point that determines how we play the next swing, I thought it would be a good opportunity to look at the outcome going toward December of the past four US Presidential Elections.

Let’s start with the set-up and outcome of 2000 and move forward to today’s structure:

For those of you who remember the famous 2000 election, the winner was not officially known until a month after election day.

With Election Day on November 7th, the S&P 500 was on a swing toward the 1,450 level with daily reversal candles forming as the election approached.

When the market opened Wednesday morning with the election outcome in dispute, the market fell 30 points to start a sustained down-swing that ended at 1,300.

After a counter-trend rally in early December, the market fell sharply after Governor Bush was declared the winner and thus President-Elect.

I must admit that I assumed the market rallied sharply on this news but this was not the case.

Structure was in a downtrend and the election outcome – on Election Day and when the President-Elect was announced – resulted in high-points of counter-trend upwswings in a new downtrend that would last all the way to October 2002’s bottom.

President Bush’s re-election in 2004 was announced late in the evening of Election Day:

I included the Red/Green “IF/THEN” arrows which we’ll see shortly in the current 2012 chart so use this as a similar reference (an incumbent running for re-election).

After stagnating through most of 2004, a clear resistance trendline developed into the 1,140 area as Election Day 2004 approached.

When President Bush was declared the winner (of Ohio and thus the election) late into the evening, the market responded bullishly with an immediate breakthrough of the resistance level that sparked a rally that lasted all the way to the end of 2004.

One assumes that had the outcome again been in doubt, the market could have developed a down-swing from resistance as an “alternate” outcome.

Unlike the current election, candidate Obama was heavily favored in the polls against John McCain and the election was decisive:

After a clear election outcome Tuesday evening, the market opened the next day with a sharp sell-off and break back under 1,000 to start a fresh down-swing in the context of an established downtrend that began in October 2007.

Like 2000, the election corresponded with the peak of a counter-trend upswing ahead of a sell-off swing into the end of the year.

The past three elections reveal a “spit decision” of two sell-off outcomes (into December) and one sharp rally outcome (2004).

Here is how the market structure exists as we approach Election Day 2012:

While I don’t plan to make a formal prediction on the state of the election, I’ll just focus on the current structure of the market at a short-term turning point between a new pro-trend upswing off 1,400 or else a breakdown and short-term reversal swing under 1,400.

Polls and pundits point to a narrow win for either candidate and the potential that the outcome is unlikely to be known as soon as the polls close on election evening.

In the event that the election results are in dispute into the next trading morning, this outcome would favor the “Breakdown” thesis where 1,400 may break as support.

Otherwise, just because a winner is declared does not mean the market will automatically rally in a knee-jerk reaction (reference 2008).

If you’re a political news lover like me, stay tuned to the election night coverage to know the winner as soon as possible.

Otherwise as you wake up getting ready to trade the market on Wednesday morning, feel free to use these historical charts as a reference with respect to the key “bull/bear” pivot level near 1,400 currently in play.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter: http://twitter.com/afraidtotrade

Corey's new book The Complete Trading Course (Wiley Finance) is now available!

blog.afraidtotrade.com


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