The US Election Cheat Sheet

06 Nov
US Elections

The US Election Cheat Sheet

As we saw a lot of the financial markets migrate from open outcry to electronic trading, so we saw less importance in Fundamental Trading and more emphasis in Technical Analysis Trading. Many traders, including myself, hold the belief that the fundamentals are priced in the technical. Despite this, there are still some days that fundamental traders take centre stage such as Brexit, but there is no event that Fundamental Traders hold dearer than the US Presidential Election.

Odds vs Polls

Some may scoff at the idea of monitoring the betting odds but it has a place. The Polls consist of telephone calls to come to a conclusion, whilst the odds represent the bookies hedging their bets – people putting their money where their mouth is. Keep in mind that the whole world can bet, but only Americans can vote. The actual race this year suggests that it could be closer than what the odds are forecasting, expect these to change leading up to the election.

Current Odds:

President

  • Hillary Clinton Win 69%
  • Donald Trump Win 31%

Senate

  • Democratic 75%
  • Republican 25%

House of Representatives

  • Democratic 5%
  • Republican 95%

Early Trading Indications

  • Voting opens at 11:00 GMT
  • Voter Turnout – High Turnout favours Hilary Clinton
  • Keep an eye on the weather (Bad Weather favours Donald Trump)

Important Polls

The Florida result is the first time we will start to see a trade and possible winner. If Donald Trump wins Florida by more than 3% it will be the first indication of a possible upset. Nevada is the next important close, the winner of this state usually goes on to win the election. News Broadcasters like CNN usually start announcing a winner around 05:00 GMT, stats show that this is too late to trade. History shows that most traders trade between the Florida Poll and Nevada Poll and close trades at the end of the polls – “Buy the rumour, sell the fact.”

  • Final Voting closes at 04:00 GMT (Wednesday Morning)
  • Florida closes at 00:00 GMT
  • North Carolina closes at 00:00 GMT
  • Ohio closes at 00:30 GMT
  • Nevada closes at 03:00 GMT
  • Final close at 04:00 GMT

Donald Trump Win

  • High Risk Aversion – “Risk Off”
  • BUY EUR/USD
  • SELL USD/JPY
  • SELL USD/CHF
  • Short Equity Indices
  • Short Oil
  • Long Gold

Hillary Clinton Win

  • Risk Appetite – “Risk On”
  • BUY USD/JPY
  • SELL EUR/USD
  • Long Equity Indices
  • Short Gold
  • December Fed Hike Probability increase – possibly close to 90%

“Once the dust settles”

  • If there is any shock (Donald Trump victory), market will be in denial for about 8 hours after announcement
  • November may see some “noise” in Equity Markets and Risk Currencies (EUR/USD, USD/JPY, USDCHF)
  • December mostly characterised by strong USD Buying
  • 2017 to see High Deficit Spending – Economic Theory suggests this to mean a strong USD

Conclusion

As I look back at the price action of past election years, it is evident that most traders prefer to trade in the lead up to the announcement. The Nevada poll in this case may represent the final “nail in the coffin” for the winner, after this is released data suggests that traders close their positions. In this instance a Trump win will start to get the market talking about possible policy changes, a Clinton victory will get the market talking about the FBI Investigation. It is likely that the Republicans will win the “House” and the Democrats will win the “Senate” it is therefore my opinion that there is enough “check and balance” to stave off any radicle ideas. A week from now it will business as usual.