It’s Election Time … So Throw Market Analysis Out the Window

by Serge Berger | November 6, 2012 6:30 am

It’s Election Time … So Throw Market Analysis Out the Window

With the end of the U.S. presidential election within reach, I have received a dozen or so emails asking me how folks should trade the market these next few days. I have just one answer:

Unless you must trade by mandate or have an incurably itchy trading finger, sit this one out and let the elections come and go before putting your hard-earned money at risk.

As I often say, technical analysis is best used when pinpointing reference levels rather than blindly trusting any given indicator. This becomes immensely more important when we enter periods of significant uncertainty — such as, say, a presidential election. And, for what it’s worth, fundamental analysis also will be of limited use in the coming days.

Instead of analyzing stacks of statistics on market reaction to the past dozen elections, I will simply say that markets should be volatile, trading at least in a choppy range up until a couple of days after the election results. And even then, remember: What matters more than the news itself is the reaction to the news.

So rather than seek trades you can’t count on, the best thing to do right now is go back to basics — namely, let’s get a hold of the broad-stroked trend in the S&P 500 so we don’t forget it during potentially choppy days ahead.

spxsectors 300x214 Its Election Time ... So Throw Market Analysis Out the Window
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The S&P 500 Index’s sectors currently are in a consolidation phase. None of the sectors are showing any major damage, though utilities are under relatively more pressure compared to most of the other sectors, especially cyclicals. Outperformance of cyclical sectors is a bullish sign.

spxdaily 300x214 Its Election Time ... So Throw Market Analysis Out the Window
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The S&P 500 Index itself is simply consolidating some of its large gains since June. Next support levels are near 1,395 and 1,370, which are the respective 38.2% and 50% Fibonacci retracement levels of the June-September rally.

So for the coming days, please keep in mind that most analysis — technical or fundamental — will be of limited use until the election results have had time to sink in.

Until then, remember the broader patterns of the S&P 500 … and try not to follow every tick, headline or rumor.

Serge Berger is the head trader and investment strategist for The Steady Trader[1]. Sign up for his free weekly newsletter[2].

Endnotes:
  1. The Steady Trader: http://thesteadytrader.com/
  2. free weekly newsletter: http://thesteadytrader.com/archive/

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