Home Business News Alessio Rastani: Will the stock market crash before the US election?

Alessio Rastani: Will the stock market crash before the US election?

by LLB Editor
1st Nov 12 12:00 am

Controversial trader who told the BBC “Goldman Sachs rules the world” gives his verdict

Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com.)

With less than two weeks left to the US Presidential Elections in November, the important question on everyone’s lips is: Will the stock market “crash” before election day?

I use the term “crash” in a loose sense.  I am not expecting a damaging crash like we had in 2008.  Rather, I am looking for more of a significant decline that could end this month on a negative and perhaps take the stock market down by 10 to 15% over the next few months.

I should state at this point that for the record I personally do NOT have any political biases or affiliations.  It does not matter to me who wins or loses this election. I’ve made my own opinion too clearly as to who I believe really rules the world and America…

So why does it matter if the stock market declines before the presidential elections?

Well, here is an interesting piece of data from the European Journal of Social Sciences in a paper titled “The Stock Market and Presidential Election Polling”:

“Every negative change in the stock market over the final month before an election in the past 80 years has resulted in a change in party. 

 A positive change tends to be good for the incumbent party, whereas a negative change makes the incumbent’s party vulnerable to losing.”

Election result

The market being tested here was the S&P 500, the index of the 500 largest companies in the world.  It is also a market that I myself trade on a regular basis.

The “incumbent party” this year would be the Democrats spear-headed by President Obama.

So if the above data is anything to go by, and if history repeats itself, a downturn in the markets this month (or a negative close) could dispel any hopes for Obama being re-elected.

So let’s turn now to the state of the stock market and whether it supports an Obama or Romney win.  Take a look at this recent chart of the S&P 500:


Election result

You will notice that the S&Ps have broken a significant support level – as shown by the red line. A support level is like an imaginary “floor” in the market, which usually halts the market. 

When a support level is breached, this means that sellers have the edge and that there is a higher probability of further selling (or downside) pressure.

The S&Ps broke this important support level at 1430 last week.  Disappointing earnings from key tech stocks like Google (GOOG) and Apple (AAPL) meant that bears (“sellers”) have started to dig in their claws. 

So far the only thing that has kept the market on its feet has been due to the financial stocks like Goldman Sachs.

However, the charts indicate that further selling is still to come… 

If the S&Ps close below 1400 this month, we could see the markets sliding to the next level of support at 1390 and perhaps even to 1372 which is a 50% correction of the June-September rally.

This would mean that the peaks of the market set in September 2012 level will not be challenged until next year.

The question now is just a matter of timing.  When will the market continue this downward decline?  And if the market seriously sells off, will it be before or after the election?

If history repeats and the stock market closes this month on a negative, Obama loses and Romney gets in the White House. 

On the other hand if the markets close higher, Obama may have a better chance to pull through this election.

Whatever the result, we’ll be watching. 

For further information about trading the markets visit my website www.LeadingTrader.com.

Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.

Leave a Comment


Sign up to our daily news alerts

[ms-form id=1]