Presidential Election's Impact on the Financial Markets

By: Anthony_Cherniawski

Today let's talk about how elections are influenced by the market.  Did you know that in the last century not a single Presidential election has been won by the incumbent party when the market has been down?  That may be a very good reason why this rally has stronger legs than I had anticipated.  It appears that there is an effort to save the incumbent party from the ravages of the market. 

One recent example is George Bush Sr.'s loss of a second term in 1992.  The Dow was only up 1.7% by October 31 st and the Republican's lead was very slim going into the election.  Unfortunately, Ross Perot carried 19% of the vote and Bill Clinton's message, “It's the economy, stupid!”  carried the day. 

A look at the charts show what has happened in the last week.  Last Tuesday, the Dow bottomed at 8143.  At the end of the day, al rally was launched based on rumors of a .5% rate cut.  A week later, the Dow is up 18.3% in time for election day.  Normally you would be happy to see a return like that in a year, but the prior 12 month decline was 43%.  So this rally may have been staged to get the electorate to think a recovery has begun.  This may not be the case.  Let's look at the chart.  What we have is a bearish pennant that has morphed into a bearish wedge.  I don't know which targets apply, but let's discuss them. 

The SPX shows very similar numbers.  After declining nearly 47% in the past 12 months, it rallied 19% just in time for the election.  Not bad, but will it save the presidency for the incumbent party?  We are watching history in the making.  The message from last week hasn't changed.  The outcome is only affected by degree, since the bearish wedge has a lesser target than the bearish pennant.

The gold charts show a retracement rally in progress today.  However, it may have ended with the election and we may see the decline begin in earnest again tomorrow. 

Oil, on the other hand, has a probability of rallying to 75 before resuming its decline in the near term.

I hope that everyone voted today.  This will be a very important election regardless of the outcome of the market. 

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This week's show on www.yorba.tv is packed with information about the direction of the markets. I'm on every Tuesday at 4:00 pm EDT . You can find the archives of my latest programs by clicking here .

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Anthony M. Cherniawski,
President and CIO
http://www.thepracticalinvestor.com

As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals

Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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