What Happens to Stocks After the Election?

We would like to welcome John F. Carter of Simpler Options to the CBOE Community.

John Carter has been a full time trader since 1997 and is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade. Mastering the Trade by John F. Carter was released in January, 2006 and the second edition was released in March of 2012. Carter’s trading book quickly climbed the charts at Amazon.com. His favorite trading vehicle is options. John started SimplerOptions.com where he enjoys sharing his favorite options strategies with others.

Welcome John!

This is a critical time for the stock market. Everyone is in “hurry up and wait” mode for the election results on Tuesday night. What will stocks do if Romney/Obama win? Well I’m going to tell you.

But before I do that, let’s step back and take a look at the market action the last few months. As a technician I use several indicators and pattern recognition to alert me as to what these markets are doing. Since the SPY made its high on September 14th the S&P has been a clear down trend.

A downtrend is marked by consecutive lower highs and lower lows.  As you can see from the daily 6 month chart of the SPY below. You can also see the recent uptrend the S&P has been in marked by the consecutive higher highs and higher lows. The sell off on October 5th was the first time in 6 months the S&P could not make a new high after a pull back and went on to make a lower low. Recognizing an uptrend or downtrend is the important pattern to be able to recognize as a trader and yet it is the one most overlooked.


The next way to determine a trend is by using a proprietary indicator I developed call the TTM Trend. The TTM trend are the painted blue and red bars. The blue bars signify an uptrend and the red bars signify a downtrend. You can see the clear difference in the market pattern by using this indicator. During the uptrend there was more blue bars and then only a few red bars before rotating back to blue. In the last 7 weeks there has been a clear change to more red bars followed by a few blue bars before rotating back to red.

So by now you probably have figured out the answer to our original question – What will stocks do if Romney/Obama win? Answer: No matter who the victor this downtrend will continue.

How do you position yourself? If you are more comfortable to place your bet after the election by all means do so. Hey, I could be wrong and the market could rally to new highs based on the election results. I think you will still have time to take a position though. I’m telling my investment newsletter subscribers to take a smaller percentage of the portion of their portfolio they dedicate to directional options plays and look for a longer term play in SPY puts. I would go out to at least December and purchase some in the money puts in anticipation for the 10% correction ahead.