The Election Cycle: What to Expect in Stock and Bond Prices
If Obama wins the election, it's likely that bond prices will rise or trade sideways while stocks will move higher. If Romney wins, bonds could rally much more and stocks could sell off.
Bond Prices – Moving Against the Norm
Bond investors are some of the most conservative people in the market. They do not like to take risks so they dump their money into bonds to make a tiny profit in exchange for low risk (volatility). The nature of these investors is to put more money into bonds as we enter the election because they are nervous about not knowing who will be in control of the country.
After an election is over, some money flows out of bonds and into stocks because there's now a president and direction for the country. Generally, come the new year, investors move to bonds as the safe haven as they try to figure out what their game plan will be.
So looking ahead to this week and the next two months, I would not be surprised to see bond prices rise or trade sideways while stocks move higher. This analysis is based on Obama winning. If Romney wins, then I feel bonds will rally much more and stocks could sell off.
iShares Barclays 20+ Year Treasury Bond (NYSEARCA:TLT) Daily Chart
Here is a chart of 20+ year bonds, showing a possible reversal to the upside that could trigger as soon as next week. This chart is forward-looking one to two weeks. Overall the trend remains down, but if Romney wins I feel bonds will break out above the red resistance levels and trigger a new uptrend.
Election Year Trading Cycle Conclusion
Next week is going to be very interesting to watch unfold. I generally do not like to trade or invest before news of this magnitude, so trade smaller sizes if you choose to as price action could be wild.
Editor's Note: Chris Vermeulen offers more content at his sites, TheGoldAndOilGuy.com and Traders Video Playbook.
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