Election Day Jitters | Podcast Episode #458

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Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance.

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Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

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You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory with shareplanner.com’s.

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Swing Trading the Stock Market and today’s episodes going to focus on this upcoming election. Not so much a pro or a con for either candidate.

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That’s not what I’m trying to do with this podcast episode, but just how does it relate to trading? I’ve already done one maybe like a month or two ago on this topic, but I wanted to highlight it

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again because I got a e-mail from a guy and he’s probably not going to like the name that I gave him because like I do an all podcast episodes instead of using the real names, I give him a good Florida

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redneck name. Being that I’m from Florida and consider myself a little bit of a redneck myself, I’m going to give

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this guy the name Mildred. If you’re from the South, everybody has a grandma or a aunt named Mildred.

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It’s just, it’s just part of being from the South. But any case, Mildred writes, Hey Ryan, been following your swing Trade in the Stock Market podcast

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for years now and I’ve got to tell you, this election has me extremely nervous. Every time I pull up my trading platform lately, I find myself second guessing everything. 1 poll

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shows Harris ahead and I’m thinking about loading up on clean energy stocks. The next thing you know, Trump’s number surge and I’m wanting to yellow into DJT.

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It’s like trying to dance between raindrops, you know what I mean? I’ve been trading for about 3 years now, mostly keeping it simple with trend following, but this

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election cycle has me overthinking every move. My usual strategy of wanting to clear setups is getting clouded by all these what if scenarios.

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How do you suggest we handle trading ahead of this election when the headlines are screaming one thing today in the office tomorrow?

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How do we stick to our trading plans without letting the political noise mess with our heads? Thanks again for everything, Mildred.

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All right, Mildred, we got some talking to do here because you’re scaring me with some of these trade ideas that you have here.

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First of all, you don’t want to go hopping in between two of the two of the most volatile sectors probably heading into the election.

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I mean, I think probably one of the other ones that are probably that’s probably going to be volatile would be RGR, which is, which is the Ruger stock, which is the gun company.

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And definitely don’t want to be trying to play that one ahead of the election because that’s going to have as it typically has in almost every election.

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It has some pretty wild swings in it. And and when you get into these kinds of like very emotional headline driven risk events, you don’t

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want to be playing the stocks that could benefit or sell off the most of any other stock. For instance, you take DJT without getting political here because definitely don’t want to do that

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because this isn’t a political podcast. But you take DJT at the basic level, it’s going to have a reaction to the election.

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Whether Trump wins or Trump loses, it’s going to react. So it’s probably going to have one of the biggest reactions to the election.

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So considering that the results will start coming in after hours after the election, the one thing I don’t want to be doing is holding something that’s going to be extremely volatile where sure, it

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could gap 2030% higher or 20% lower. And that’s just not a trade that I want to play because I can’t manage the risk.

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Now the clean energy stocks, if Paris wins, could those stocks benefit from from her presidency? Absolutely.

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But if she doesn’t win, that’s probably one of those areas in the stock market that’s going to really suffer.

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So from a risk management, and this is what makes the elections so difficult from a trading standpoint, is that it’s very hard for people to be able to separate they’re trading from their

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political bias. But you have to do that.

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You can’t let the political bias get in the way of managing the risk or managing your trades or making the right decisions on behalf of your capital.

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But often times that’s what happens. And so I’m sure I’m not the only person I’m looking at polls everyday to just curious about how how

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everything’s going. And you see everything’s like Harris plus one Trump plus one tie, tie, Harris plus one Trump plus

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one. There’s no real edge whether you’re looking at the swing states like Wisconsin and Pennsylvania,

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Michigan, both sides are like, you know, cherry picking essentially things that look good to their prospects.

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But in the end, it’s kind of kind of difficult to get a real good sense or feel of how this election is going to turn out.

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And I think you also have an issue, too, with the polls where you have this hurting mentality where the previous 2 elections, the pollsters have underestimated Trump’s strength on Election Day and the

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results that come from the election. And So what they don’t want to be is wrong for a third time.

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I’ve heard stats where they’ll say, oh, the polls have never underestimated a candidate’s strength three times in a row.

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Well, they’re going back to 1972 and like, what are we talking about 14 election cycles here from a presidential standpoint.

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So that’s that’s hardly a sample size. So I don’t think that that carries any weight.

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But I do think that there is a hurting mentality right now where everybody’s kind of trying to stick around the same general plus 1 – 1 tie with the swing states with the national polls so that they

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don’t look bad on Election Day. Because of the last thing you want to do is be like, hey, we got Harris up +5 going into the

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election and then Trump wins by +2 on the national polls or we got Harris winning Pennsylvania by three and Trump wins it by +4 or vice versa.

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You know, you’re not seeing any polling data that says Trump plus four in Pennsylvania because they don’t want to be wrong on Election Day.

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And it says Harris plus three in Pennsylvania on Election Day. So the hurting mentality I do think is a real thing, which is making it to where the polls aren’t

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going to give you a clear understanding of who’s actually winning and who’s actually losing, which makes the news out there very difficult to determine who’s actually got the edge going into Election

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Day. I know from personal point of views, people will disagree with me on that, like, oh, no, Trump,

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Trump’s going to win or Harris has got this. That’s fine.

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I have no problem with political bias. What I have a problem with is just don’t put it into the trading because trading and political bias

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do not go together. That is the source of a lot of losses out there.

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The number of people who have lost money just trading DJT because of political bias is is pretty extreme and we’re humans, we’re going to have political bias, but the key is is to not let it affect

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our trading decisions. Have all the political bias you want.

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Just don’t let it get into your trading. The other thing to that would be careful of is trying to make trading decisions based off of what

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you’re seeing off of the Poly markets or the the betting markets that they’re letting you bet on a candidate because you can get a few whales that bet on a particular candidate and it can skew the

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results. So of late you’ve seen Trump that, you know, surging in the polls.

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And then now over the last couple days, that lead has tightened up a little bit here on on the betting markets.

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And why is that is because if you’re getting the whales to bet in a certain direction, that’s going to skew the odds because it’s going to adjust itself based off of how many people are expecting a

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certain outcome and the odds start to change. So yes, the whale betters, they can swing the betting markets on this election.

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So don’t don’t go off of that either. And I’m not talking about don’t go off of it for, you know, your own political interests or for, you

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know, making election night entertaining for you. I’m just saying don’t let this stuff enter into your trading from a stock market standpoint.

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Now, what I also think is important to bring up is how the market has responded to the elections over the years.

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So a full week before the election, you go back to 2020. Just the last election, full week before the market was down 5.6%. 2016, the market was down 1.9%.

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Now, the following week after the election, you had the market up 7.3% in 2020, so it was down 5.6% the week before.

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The week after the election it’s up 7.3%. You go back to 2016 before the election, 1.9% as we’ve already said.

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The week after it’s up 3.8%. So the weakness into the election, strength after the election.

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Now the common denominators in both of those was Trump was running in both of those elections. 2012, it was much different.

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That was the Obama re election. So you it was actually up .2% the week before the election, but the week after the election it was

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down 2 1/2 percent. 2008, the market was up 10 1/2%, but it was 2008.

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So you were caught into that dead cat bounce at that time. The market was down tremendously in 2008.

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That’s why sometimes it’s, it’s a bit difficult to judge the market’s response to the election when you’re in a bear market because like in 2008, for instance, it was up 10%.

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But that was also because the market is already tremendously down for the year. So it was undergoing a dead cat bounce there.

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The week after it was down 3.9%. So then that day cat bounce ran out of steam.

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But there’s plenty of instances. Take the election of 2000 right in the beginning of the.com bubble, up 3 1/2 percent before the election, down 4 1/4% after the election.

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What you tend to see outside of really like 2004, which was the Bush RE election, what you tend to see is if the market is down before the election, it’s up after the election.

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If it’s up before the election, it’s down after the election. So the S&P 500 this week took on another loss before the election.

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So I mean, if tradition holds up, it should be up after the election. Now, why is that?

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Why does it have like polar opposite reactions? For one, it’s the uncertainty.

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If there’s a lot of certainty going into the election, then it’s more of like a sell the news event thereafter where the market sells off.

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If there’s a lot of uncertainty heading into the election, there’s going to be more weakness before it.

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And then once the election’s over, the uncertainty goes away. And then all of a sudden certainty comes back into the market.

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The market knows how to price in what’s going to happen and then all of a sudden it starts to rally. Does that make sense to you?

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What I’m trying to say is that market doesn’t like uncertainty. So when when the candidates kind of known who’s going to win like 2012, everybody knew Obama was

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going to win in 2012, market didn’t have a real crazy reaction was flat on the week before the election.

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And then after the election when he was elected, it sold off some. But going into 2016 and 2020, the market was down both of those times.

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And then it reversed to the upside we got for now. Remember on 2016, that was one of the wildest nights of trading that I had ever seen where we had a

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huge limit down on the S&P 500 because going into the election, all the polls were pointing towards Hillary winning the election and obviously she didn’t.

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But when Trump started winning Florida and Ohio, it and then won the blue wall States and all, it created a pretty violent reaction in the market because all of a sudden something that wasn’t

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expected to happen was starting to happen and there was a violent reaction in the markets as a result, limit down.

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But the crazy thing is that once it started to open back up again, the market was able to price in the Trump presidency and then as a result, you saw it almost green by the open that following that

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morning. So I’m the following day after the election, you had this real crazy night of futures, but at the

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open, it looked like it wasn’t even that big of a deal. Now, also of interest here is, is that the market is expecting less and less of an election move

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than it has all year long. If you go back to early August, and this was after the Trump assassination attempt, but not too long

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after, I think it was like a few weeks after the market was also selling off pretty hot and heavy. You had Biden stepping down the the expected move from the election was about 3.3% in either

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direction. It’s not telling you now this chart that I’m looking at here and you don’t need to necessarily see

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it, but I’m looking at it and explaining it to you. It’s not telling you that it was going to go down 3% or up 3%.

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It’s telling you a plus or minus. But now it’s at the lowest levels it’s been at all year.

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It’s essentially at about almost 2%, just a little bit above it. So it’s dropped from where it was much of the beginning of the year from the mid threes all the way

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down into the 2% level, 2% area. So the the volatility has decreased around it if you look at it from a longer term perspective.

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But if you look at it from a short term perspective, you’re seeing AS and P500 that’s down two weeks in a row.

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You’re seeing a month of October that was up for much of the month all of a sudden finished red on the month and that VIX is remaining stubbornly high at about 22.

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So it’s over that 20 threshold, which tends to be like an area when you get over 20 on the VIX, that tends to be an area where the market’s a little bit more uncertain about things.

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And we’ve been sitting at that 20 level for the past couple weeks there. So definitely something to keep focused on.

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The big part of it is, is that right now I’m all in cash and I don’t want to be in cash. I feel like today in particular, the market had a bounce back following Thursday’s sell off.

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Now there was plenty of stocks that were setting up really nicely and I didn’t get into them. And a lot of that goes right back to the election uncertainty because here I am, OK, we got two days

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before the election in terms of trading days, two trading days, Monday and Tuesday. I have no desire to trade that.

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I have zero desire to trade it at all because if I get long on a stock, let’s say I get long on NVIDIA and the election comes, let’s say I’m I’m up 1% going into the election.

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And then there’s another, you know, major sell off something that happens that wasn’t expected in the market’s opening down 2 or 3%.

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That could be like 4 or 5% for NVIDIA, if not more. So the risk at this point, it’s almost like an earnings event for the market.

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I often equate that to be in like a Federal Reserve type of event, you know, where it’s like the market’s earnings, but it’s not necessarily carries the same kind of volatility that you would see

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in earnings event for a stock, but it’s closest thing for the market per SE. But with an election, it absolutely is.

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It’s very much like an earnings event because you’re going to have some wild swings. You’re going to see it in the futures market.

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Keep an eye on it. It’s pretty wild what you’ll see in the futures market more than likely and the potential to be

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really right on a trade and then to be very wrong on it the next day is extremely high. So right now I’m sitting on cash.

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I think there’s some good setups out there, but I’m not willing to take them at this point in time. Now, come Wednesday, very much so.

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It’s crazy though, because next week it’s filled with craziness. You have the election obviously on Tuesday and then you have the FOMC, I believe that’s on Thursday.

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But something to keep in mind is that we’re we’re only looking at it from the point of view of Harris is going to win or Trump’s going to win.

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There is a lot of scenarios from an Electoral College standpoint where it’s a tie at 260-9269. And Can you imagine?

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I don’t think that that’s happened since Thomas Jefferson and John Adams, from recalling my political science teachings from my college years, I believe that was the last time that ever

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happened was Jefferson, Adams, Adams 1. Jefferson became the vice president as a result.

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If that was to happen with Trump and Harris, the market, I’d really do think the market would have a very, very violent reaction because then it goes to the House and who knows what kind of chaos is

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going to take place if you have the election going to the House of Representatives. And it’s much different than just the 435 representatives voting yes or no.

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I think it’s like each state gets a basically a vote. It’s kind of a weird thing.

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I don’t, I don’t know all of the particulars about it, but I know it’s a very different process. I actually am a person who does like the Electoral College because I think it involves the entire

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country and not just your major urban areas. But one thing that I would say that I don’t like about the Electoral College is why would you leave

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it up to a scenario where it could be tied? I don’t know.

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I feel like there’s there has to be some way they could have snuck in the Founding fathers, could have snuck in an extra electoral vote so we don’t have to deal with the prospect of a tie.

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But it’s very, very possible, extremely possible that on Election Day there is a tie. There’s a number of different scenarios with these swing states where that could happen.

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And so if we’re looking at this election from just a Harris wins or Trump wins, I don’t think we’re looking at the full picture.

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And then you also have the other possibility too, is that both Harris and Trump claims victory. I don’t think both of them will claim losses, but I think that both of them may be willing to claim

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victory depending on what you see and some of the results. I mean, you don’t have to go too far back to 2020 to know that Al Gore and Bush both claim victory

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in in Florida. So you could extrapolate that to where perhaps it’s so close that once that could decide the

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election for either candidate is so close that at the end, both candidates have an argument for saying that they won because you’ll probably be looking at, you know, for instance, Pennsylvania, I

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don’t think they can count their early votes until Election Day. If you see one thing on Election Day, but you haven’t counted the early votes yet, you could have a

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scenario where both candidates are trying to get ahead of the results and saying that they won. It could get ugly.

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And if you start getting into those kinds of scenarios, that’s where I think the uncertainty in the markets could really, really pick up steam.

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So you want to think about that as we head into Election Day. Remember, there’s what, 240 trading days of the year.

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If you find yourself sitting in cash right now or you’re just like you don’t have the stomach for the election you’re you’re losing at this point 2 days of trading before you can get back in again.

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Often times it just isn’t even worth it if it’s if it’s going to cause you a stomach ulcer, it’s not worth it.

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Have the Peace of Mind Yes, if you look at it the day after the election like oh, if I would have stayed in the stocks, I could have made so much more money yes, but you also probably kept your

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sanity in the process. So any case, we covered a lot here.

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Let me know to your stories. I love this question about the Election Day.

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I didn’t think I’d be doing 2 Election Day podcast episodes, but here we are. I’m doing two of them and really thoroughly enjoyed this one and maybe do a little bit of research

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and really enjoyed the whole thing as a whole. But send me your story, send me your questions.

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What bothers you, what concerns you? What are you struggling with as a trader?

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I want to hear about it. I want to hear about your stories and so does everybody else.

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And don’t worry, I won’t use your real name. Thank you guys.

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All the best to you and I look forward to trading with you soon.