Charting the SP500 Outcome of Elections Past

Nov 5, 2012: 5:01 PM CST

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 three US Presidential Elections.

Let’s start with the 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 upswings 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 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.

It may be safe to assume that had the outcome again been in doubt, the market could have developed a down-swing from resistance as an “alternate” outcome.

In 2008 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 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 suggest an 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).

As you wake up 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

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7 Responses to “Charting the SP500 Outcome of Elections Past”

  1. Gollum Says:

    The 3 years you cited all had the markets trading up into the election. This one has it trading down into the election. The paths you outline will not transpire. It won't be one or the other like that. No serious trader makes bet based on the news anyway. You follow the signals as the market presents them.

    The market this time is likely to rise on or after election day, then get faded days or weeks later, probably after people with this mindset decide it's the green line scenario and get long. Then they all get stopped out as the lows are taken out from October as we head into mid-December.

  2. TheOne Says:

    Sharp Sell-Off Tuesday down to 1386 ES. Huge short squeeze Wednesday that runs for weeks. For I have spoken.

  3. Tuesday November 6th 2012; Election Day in the USA. - Page 2 Says:

    […] Election Results and S&P behaviour Charting the SP500 Outcome of Elections Past | Afraid to Blog […]

  4. Smiddywesson Says:

    “The 3 years you cited all had the markets trading up into the election.”
    -Good point
    “No serious trader makes bet based on the news anyway.”
    – No, but the big players do tend to copy each other, which is just as bad. I'm also not so sure I agree with the tacit assertion that the serious traders matter and are not outnumbered by big banking interests, insiders, and fools.
    Hey, I liked your reasoning. It's irrelevant that your prediction didn't play out. It's only relevant that you react when it doesn't. (Tricksy marketses, gollum!)

  5. Smiddywesson Says:

    Agreed. The powers that have kept this market from collapsing are not about to go away anytime soon. Sure there has been a sell off, but that doesn't mean Ben and company are going to hand an easy shorting opportunity to the bears. The easy money will still be in buying the rallies and taking quick profits, not fighting the Fed and shorting.

  6. TheOne Says:

    Looks like I was a day early in my call but none the less the outcome off that level was very profitable from a handful of ES lots.

  7. Seawaves Says:

    you are simply amazing, smart One.