Election Years

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Heather Cullen

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In The Money

Heather Cullen In The Money BLOG Election Years

The Market in Election Years.

Why can’t everyone settle down and stop giving us surprises? It would make our job so much easier!!

Not only . .

In last week’s blog we thought the week was crazy; what about this week? Last week we had the double whammy of an attempted assassination and then a global IT meltdown. As you would expect, the markets reacted badly, with the tech sector getting the worst of it. But then ;

. . but also!

Biden decides (or had decided for him) not to stand for re-election. We have to go back to 1881 to find a one-term president who decided not to seek re-election*. While the decision was momentous, the timing was even more so. It is the first time any president has left it so late before announcing it.

Markets Like Predictability

We all thought that we knew what we were dealing with – a Trump / Biden rematch, relatively predictable.  

Now it is (probably) going to be a Trump / Harris race, and as Harris is a relatively unknown contender (as in only known as VP and with a low profile) everything has become very unpredictable.

Markets Hate Unpredictability

The markets doesn’t like unpredictability. It dropped. Precipitously. Not right away, but on Wednesday. Why Wednesday? 

The consensus was that Alphabet (Google) results were bad, but they actually beat analyst expectations so I don’t think that was the reason for such a large drop.

Why the big drop?

I noticed that the drop was happening when Netanyahu was addressing Congress. Neither the President nor the Vice president were there so my guess is that it suddenly struck people: was anyone actually running the country? That’s my theory anyway.

What happened in past presidential election years?

I had intended to look at how the market behaved during the last few presidential election, but this one is shaping up to be an election like no other. However, that is probably what we say every time, so let’s look at them anyway.

2020 Biden / Trump

I’ve put the 6 months before and after the election on the chart. Everything was good until 3 months before the election when we went into a period of instability. After the election, the market trended up for the next 6 months.

What happened next? The market continued up for a few months then tanked into the Biden bear market lasting around 16 months. It was not a particularly deep or sudden bear (like the Covid bear), but it was drawn out and painful.

2016 Clinton / Trump

The market had essentially been going sideways for a couple of years, then 3 months before the election showed a drop and instability, just like the 2020 results.

Heather Cullen In The Money BLOG Election Years

What happened after? The market climbed for 2 years, had a bit of a wobble at Christmas 2019, then recovered and made new highs before Covid struck.

2012 Obama / Romney

The market had been going sideways since the start of 2011, then 3 months before the election we encounter instability and a drop. Just like 2016 and 2020. Is a pattern starting to emerge?

Heather Cullen In The Money BLOG Election Years

And what happened afterwards? The market climbed steadily until the end of 2014 when it flatlined.

2008 Obama / McCain

Well, this definitely wasn’t a ‘normal’ year. We were in the throes of the GFC, and the market had already dropped 45% from its peak.

Heather Cullen In The Money BLOG Election Years

Now, if it were like the 2012, 2016 and 2020 elections then it would have started to climb almost immediately. But it didn’t. It dropped another 25%. Not nice.

After it reached the low in March 2009 it started to climb but took until 2013 to reach it’s previous highs. Yep, more than 4 years.

2004 Kerry / Bush

For a full year before the election the market had been going sideways, so the period of instability was not really noticeable. Just before the election there was a noticeable rise, with the market reaching highs last seen in 2001.

But afterwards, disappointment. Pretty well sideways for the next 2 years before it started to rise again.

So what does it all mean?

That’s debatable. There is no one pattern that is present in all 5 elections we have looked at. The 2008 election was ‘different’ because it was in the middle of the largest market drop since the great depression. But others have been just as different; the 2020 was after covid had struck and we saw an unprecedented government reaction to it. 2016 was different because an outsider was challenging. There is always a reason that ‘this time its different’.

What should we do?

/Firstly, remember that ITM has been tested through all these elections, momentous or not. Then have a look at the charts yourself and see if you can see a pattern. Here’s the link: HeatherCullen.com / Stcck Charts 

Remeber to share if you can discern a pattern!

To the markets

 Well, after one horror week we had another horror week. Makes you want to lie down, kick your heels and yell ‘It’s not fair’. But that’s a waste of energy. Let’s look the beast in the eye and see what happened.

SPY Charts

Last week I said that if it dropped through support at 550 that would be a bearish sign. It did and it is, but as it was in reaction to news then it isn’t simply a move because of market sentiment. I think we have to wait for further developments (Please, please, please, let this week be a quiet one. I am fed up with the dramas!)

In the chart I have put in a new possible support level (the green line). If that doesn’t hold then we will be dropping to 525. Possibly. Probably. I think. Based on the charts.

And in the longer term, the uptrend has not yet been broken. I have left in previous uptrends (the green lines) and put in an new trend starting in October 2023 (red) which was when we got into the market with ITM Bull. We’ll watch that to see if it holds.

SPYG Chart

SPYG isn’t looking great. The greater preponderance of tech stocks makes it more responsive to moves in that sector. It has dropped through support at around 79, and is headed south. I have drawn in an additional support line at the highs of late May, and we will hope that that holds. If it doesn’t, we will be revisiting the highs of March / April.

Heather Cullen In The Money BLOG Election Years

On the weekly chart we have dropped right back to the uptrend.

Heather Cullen In The Money BLOG Election Years

QQQ Charts

The QQQ chart is much the same as SPYG. Support at 474 didn’t hold, it dropped right through. I have drawn in an additional support level at the May highs (green) and if that doesn’t hold then it is down to the highs of March / April. Let’s hope it bounces.

On the weekly chart, as for SPYG, it is dropping towards the uptrend line. Let’s hope it holds.

Heather Cullen In The Money BLOG Election Years

VIX Chart

The VIX shows signs of flattening off. And notice that it is still low.

Heather Cullen In The Money BLOG Election Years

Extra Charts

There are a couple of extra charts that will shed light on what is happening right now.

The Dow

I don’t usually take any notice of the Dow other than to see what people are deducing from it. But let’s look at the chart. What do you notice?

Heather Cullen In The Money BLOG Election Years

Yes, it hasn’t suffered nearly as much, but on the other hand it didn’t rise as much. It is sitting on support at the highs of May and March / April.

The Russell 2000

I haven’t talked much about RUT, the Russell 2000 index. It tracks the performance of 2,000 small-cap companies in the United States and is the benchmark for the small-cap segment of the U.S. equity market. Look what is happening to it:

Yes, it has barely suffered at all. The explanation that is being given is that traders are ‘rotating’ from riskier (read tech) stocks as the Fed is sure to drop interest rates and these stocks will benefit. It is interesting to note, however, that RUT is NOT making new all time highs, and has yet to match its previous peak in 2021.

ITMeter

Heather Cullen Blog ITMeter

The week ahead . .

Let’s hope there are no more big surprises – after the last 2 weeks I am feeling somewhat shell-shocked. The futures (6 hours to market open) are looking slightly positive.

Still gadding about

No profound thoughts this week – still reeling from all the surprises! But there is unexpected beauty everywhere:

On a boat near Stromboli (the volcano).

Heather Cullen In The Money BLOG Election Years

And at sunset drinks in Marsala (yes, they are chairs!)

Fingers crossed for a good week! (we deserve one!!)

Heather

*not counting  Coolidge and Johnston who served 5 years 8 and 2 months respectively owing to the death of the incumbent.  

Questions & Answers

8 Responses

  1. Hi Heather I read your book yesterday. Congratulations. It is very well written and interesting so I could read it in one day. I have seen some strategies that trade SPY with risk on and risk off parameters. Yours really makes sense. Can you tell me about the maximum drawdown you found on your backtest? Since you use leverage (in a healthy way, but still leverage) this is an issue for me to understand. Thank you Morris

    1. Hi Morris – I’ll hav to wait until I am back in my office to check this, and I am back on the 10th August. I can’t bear working on a laptop other than for very easy things. I will try to remember – but if I forget please submit it again through the comments.
      Plus the backtet results are all here if you want to check for yourself: https://heathercullen.com/backtesting/
      h

  2. Hope you continue your weekly updates with all the craziness and talking heads in the markets it such a wonderful calm to just read some guiding thoughts on Monday morning.
    Mike

  3. the pattern I’m seeing like 3 patterns in one chart… 1. we’re leaving a trending into a range ( I havent meditated on it yet lol ) 2. kinda looks like a head and shoulders pattern shaping 3. It was at the bottom of a channel R

    1. HI Randy
      you can often get different patterns on the same chart – I have been amused in the last few days by journos on Investing.com looking at the same chart and some seeing bullish patterns others bearish.I have a couple of days more data than you (due to my tardiness in replying) but here are my thoughts:
      1. we’re leaving a trending into a range – we’ve left the uptrend and could be going into a range – this would be quite likely – but there has been a downrend which is now broken? Need some more data.
      2. kinda looks like a head and shoulders pattern shaping – could be, if it continues down from here (lets hope is doesn’t) I have never been a fan of head-n-shoulders as they depend too much on ‘seeing’ rather than drawing.
      3. It was at the bottom of a channel – I think it has broken the bottom of a trading channel?
      It’s definitely an art not a science, which is why I try to keep it very simple and only use easily replicable drawing.
      But interested in what you see at the end ofnthis week!
      h

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