One of the most simple stock market techniques is to buy in early November and “in May, go away.” This is so reliable that even new traders who trade stock market for dummies can use it.
It’s a cyclical rotation in the stock market that has proved successful for many decades since the equity markets have tended to make the vast majority of their gains during that time. But that cycle doesn’t always work. Here’s how to determine if it will this year.
Last year (2016) that cycle was combined with 2 other important factors:
- An election year.
- Very significant support/resistance levels.
Now that we’re in May (maybe June when you read this) give your opinion as to whether you think the market will slow down, reverse or continue to go up as strongly has it has been. Enter your opinion in the COMMENTS section at the bottom of this page.
PLEASE “PAY IT FORWARD” BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons above, or at the very bottom of this article.
Today we’re going to talk about the presidential election here in the good ole US last year and how it affected the stock market. Quite an interesting thing here which is not only important for the presidential election, but also some good trading lessons. So let’s look at what happened right around the elections.
The election was on November 8th, and for quite a while before the election, of course we are talking about who’s ahead in the polls, and so forth, it was a big big deal. One of the most interesting conversations.
Here’s the 7th and the 7th was the day before the election. Election was on November 8th. And as you can see here, the market rallied pretty dramatically. Get a big big bullish bar here after coming down a little ways from there to there, kind of a neutral bar here. That is a bottoming candle stick bar but still point is, before the election, the day before election, now if you are listening to the news, people are calling this the Clinton Rally.
STOCK MARKET TECHNIQUES THAT WORK DESPITE THE NEWS
The Clinton Rally, because all the polls, or almost all the polls, the vast majority opinion was that Hillary Clinton was going to win the election. And they, market participants, like to get in board or on board, before something happens. This is actually a part of DOW theory called “discounting the market. More commonly it’s known as buy the rumor and sell the news. So People were buying the rumor, that Clinton was going to win, it was a sure thing, done deal. Over and out. And that the market must like Secretary Clinton. That it would rally so dramatically. I mean just compare this bar with the bars before. That is a very very bullish bar. It’s the most bullish bar in the chart for months.
They’re saying, oh the market likes that Secretary Clinton is going to win, because that’s the day before the election and everyone was sure that she was going to win. Okay, let’s see what happened after that.
This is the day of the election. So a little less enthusiasm. You know definitely still market moved up, made a higher high and a higher low. It closed above the open. Where did it go? It stopped at that red line. Now is that some magical numerological line? No that’s the 50 period simple moving average. That’s one of the most simple stock market techniques.
The 50 period simple moving average is one of the most commonly used moving averages, and so if you go back over here in time, you can see as well that the market held the 50 period simple moving average there as well. So when it comes to support resistance, you don’t really want to use things that are not used by other people.
SUPPORT AND RESISTANCE RULE THE DAY
Support resistance works for one reason, and the market logic as I call it, that support resistance works is because a lot of market participants see it, and the more people that see it react to it. Either buying or selling or profit taking. So when it comes to support and resistance, you don’t want to use anything secret. You want to use something that everybody sees because it has a self-fulfilling prophecy to it.
We see this all the time with 50 period simple moving average. I know it’s boring, there’s nothing exciting about it. But a lot of times, boring works. The simplicity works. We don’t have to be all fancy, in fact when I went to the Chicago Mercantile Exchange, hired a floor trader to work with me, got an apartment out there, my trading was really sophisticated.
I learned what he and his friends were doing, and it was frankly brain dead simple.I came back humbled because they were making a lot more money than I was. I just thought wow. Okay, I’ve got to really go back to simplicity and that’s what I did. So this is one of those things, the 50 period simple moving average. So okay, now let’s see what happened after that.
THE STOCK MARKET IS FULL OF SURPRISES
So that’s the day of election, then the day after election, BAM! Wait a minute, but Donald Trump won. And nobody was quite sure. Well by the time, the market closed on Tuesday, the day of the election, the results were not all in yet. but the day after election, the results were in and what. The market went up, so now they called it, guess what they were calling it on the news the next day. They were calling it the Trump Rally! They are calling it the Trump Rally on the news.
So we had a Hillary Rally here, and we had a Trump Rally here. And so the question is, did it really matter who won the election for the stock market? Either way, the market went up. And so it wasn’t the Clinton Rally, wasn’t a Trump Rally. It was just a rally. And there’s a reason that went up by the way. And it wasn’t because of Hillary or because of Donald. By the way we’ll just see what happened after that too. So market goes up, up, up. Actually need to rescale here now a little bit. And see where we are today.
Okay. So now we’ve gone up here. Market get more narrow range, volumes taper down a bit, and why? Because we’re at a horizontal support resistance level. Now horizontal resistance level just means a previous high. A previous high in the market. Again that’s something you always want on your charts. Because it’s very predictable that again everybody sees it, even a “stock market for dummies” trader sees it. Therefore as the market approaches it, people get more cautious and you don’t get a lot of buying into it.
DOES NEWS TRUMP TECHNICALS OR DOES TECHNICAL ANALYSIS TRUMP NEWS?
So why does this low actually come in? Well sometimes technical analysis can be a very amazing thing. So let’s see here. Let’s add another very very complicated secret, that is actually not a secret at all. So there it is. The 200 simple moving average. Let’s add that on, see what happens. Oh my gosh. Amazing. Isn’t it great to have these secret indicators right there.
That’s exactly where the market bottomed out, at the 200 simple period moving average. So those are two most commonly used moving averages, especially on daily charts, weekly charts and monthly charts that traders look at. 50 and 200. And guess what, it works. But why does it work? No magic to it. It’s just that everybody is watching it. So as price comes into those levels people are buying, selling and taking profits.
Those who were focused on the news may have missed out on this market move. But those trading simple stock market for dummies techniques could have stayed on the right side of the market by using simple technical analysis.
So I encourage you to have those two moving averages on your charts as part of your stock market techniques. I also include personally the 100 simple moving average and I also use the 15 exponential moving average. But these are the 2 primary ones that provide, very reliable support resistance for the market to bounce off of. So again you don’t always need super fancy stuff. Sometimes just staying with simplicity is actually the best thing, and it works.
STOCK MARKET FOR DUMMIES
This is why these can work for even those who think they are using stock market for dummies techniques. You’re not a dummy. You’re just keeping it simple, which is often the best thing to do!
Now that we’re in May (maybe June when you read this) GIVE YOUR OPINION as to whether you think the market will slow down, reverse or continue to go up as strongly has it has been. ENTER YOUR OPINION IN THE “COMMENTS” section at the bottom of this page.
PLEASE PAY IT FORWARD BY SHARING THIS VIDEO & ARTICLE ON FACEBOOK OR TWITTER by clicking one of the social media share buttons below.
Also I am giving away one of my favorite chart patterns that works today. Just fill out the yellow form at the top of the sidebar on the right. Once you do that, I’ll personally send you an email with first video.
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