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As election season approaches, investors often wonder how the market will respond. By analyzing previous election cycles, we can observe patterns that may help predict future market movements. Here’s a breakdown of key insights from historical data, particularly focusing on market reactions during and after the U.S. elections in 2016 and 2020.
Key Insights from US Presidential Election-Driven Market Patterns
Accumulation Structures
During both the 2016 and 2020 elections, the market formed an accumulation structure, a pattern indicating that investors were gradually buying assets in anticipation of a future uptrend. This structure often includes periods of high volatility and volume as uncertainty increases.
Increased Volatility Pre-Election
One week before both elections, volatility and trading volume spiked. This pattern suggests that the market experiences a “backing-up process,” or a retest of previous support levels, as investors react to the heightened uncertainty surrounding the election.
Post-Election Rallies
Both 2016 and 2020 saw strong rallies after Election Day. Following the election results, markets kicked off an extended uptrend that lasted about a year, fueled by reduced uncertainty and renewed investor confidence.
Similar Structures in the Current Market
The market’s current structure resembles those seen in previous election years, featuring signs of strength rallies and backing-up processes. This similarity could mean that, once again, we’re due for a rally after the election.
Potential Short-Term Pullbacks
Before the uptrend resumes, there might be a short-term shakeout or pullback to test recent lows. These moves could present buying opportunities for investors waiting for an entry point. Refer to the video below for a detailed analysis of the S&P 500 with analogue comparison in 20elections16 & 2020 US presidential election.Video Length: 00:05:34Historical patterns don’t guarantee future results, but they provide valuable insights. By studying past election cycles, investors can better understand potential post-election trends, helping them make informed decisions in an uncertain environment.
