The mania surrounding the 58th quadrennial U.S. presidential election has ratcheted up significantly over the last few weeks - especially following the debates - and this tension can also be observed in the stock market. The 4-hour chart for the Dow 30 has been trading in a narrowing range since September 22. This type of market dynamic is known among traders as a triangle formation, and many speculators look for these types of patterns as early warning signs of an impending break.
A cursory look at the Dow Jones chart for the last year and a half shows that such a well-defined triangle pattern has not occurred recently.
Additionally, it’s important to take into account the big pivot zones that have formed since August. The biggest resistance area on the Dow sits squarely above the triangle formation, right between 18,190 and 18,240. This range was used as support at the beginning of August and this hefty area started acting as resistance in September, following the big sell-off on the 9th.
There is also another secondary resistance area around 18,320. This area was used as support several times towards the end of August and the market could not overcome this resistance zone during the big rally on the 22nd of September.
Given the heavy amount of resistance above the triangle formation, the path of least resistance for price may be on the downside.
Stocks pricing in a Trump Win?
According to a recent report by MFS Investment Management, which looked at the effects of presidential elections on stock market performance for the years 1900-2012, stocks did better on average (14.6%) when the incumbent party won, regardless of the candidate's party affiliation. While stocks did the worst (-4.4%) when the incumbent party lost the election.
