It’s said that the market doesn’t like uncertainty, yet it’s also known to “climb a wall of worry”.
The market also tends to perform better when Washington D.C. is in a state of political ‘gridlock’.
This makes sense since an ineffective Congress could be viewed as creating a sense of ‘certainty’ that the status quo will prevail.
Considering these tendencies by the market, it would be easy to assume that the period around the mid-term elections would be a rocky and inconsistent time for stocks, because of the potential for unexpected changes.
However, the data suggests otherwise.
According to Oppenheimer & Co.’s technical analyst, Ari Wald, “Q4 of midterm years through Q2 of pre-election years have been the best nine-month stretch of the four-year U.S. presidential cycle since 1929,”
Not only has this period been the most bullish, it’s gains have also been quite significant. This is illustrated by his chart below.
As you can see by the 3 quarters outlined in black, this period stands out.
In addition, you can see that the 4th quarter which contains the election, has been positive about 87% of the time with and average return of over 6%.
In fact, it’s the most bullish quarter of the entire election cycle based on both average gain and percentage of positive outcomes!
Of course, this doesn’t mean the market will go straight up, but it does put a different perspective on all the bearish spin the media tends to attribute to the ‘uncertainty’ of the mid-term elections.
There won’t a video this week. Here are the areas of particular interest in the free and premium($) area of BigView this week.
- IWM moved into a confirmed Warning Phase, and is sitting on Real Motion support.
Each index (SPY, QQQ, IWM, and DIA) is sitting at important support and with consolidation that could lead to a nice move in which ever direction the market takes next.
- Most notable sector rotation occurred in the banking ETFs (XLF and KRE) which sold off hard, while Biotech (IBB) rallied significantly.
- Market internals didn’t improve with last week’s new high and this week became weaker.
The New High/Low ratio is as weak as it’s been since March. This would suggest that a break lower in the market could become more significant.
- The Risk Gauge remains bullish ($)
- The longer duration bonds rallied modestly off the low end of their range for the year ($)
The bounce created consolidation and a low that will now be a very significant inflection point if it’s broken.
- Value stocks sold off while growth stocks held firm ($)
If this trend continues, and the market moves higher, expect the bulls to take control and the long-term uptrend to experience another significant leg up.
- The Emerging Earkets ETF (EEM) is consolidating at its 50-day MA. A break higher would be a significant trend change. ($)
- Crude Oil (USO) had a major weekly breakout. ($)
- The Dollar (UUP) moved back into a bullish phase