Mid-term elections are next week and I have a few interesting stats that I would to present to all of you. The first stat is one that I have repeated numerous times over the past month. I stated on October 12th that :
“Another interesting (and not often mentioned) statistic that I came across was that when the market had a strong September and October during the mid-term elections (4 year cycle) every single time the market experienced a dramatic sell-off during the middle of November. The scary thing was that the sell-off averaged 5% to 10%. This is certainly something that we will be watching as we move closer to the mid-term elections.”
Furthermore, the Commitment of Traders, ”a report published every Friday by the Commodity Futures Trading Commission (CFTC) that seeks to provide investors with up-to-date information on futures market operations and increase the transparency of these complex exchanges” as stated on Investopedia, came out with an alarming report. The report showed an increase in the commercial net short position to $39 billion. This is the largest short position among commercial traders since March 6, 2001. The market declined over 10% after the report in 2001. Couple this with the statistic above and the market could be in for some trouble over the next month or so.
With the market currently oversold it is hard to think that the market will move substantially lower, at least in the short-term, but stranger things have happened. The ideal set up (for a short position) would be if the market manages to move closer to an overbought state over the next few trading days. Either way, I think it pays to keep a close eye on how the market reacts to the upcoming news next week. Be nimble.
RSI Wilder (5) for November 3, 2006
- SPY - 27.3 (oversold)
- DIA - 24.8 (oversold)
- IWM - 36.4 (neutral)
- QQQQ - 38.1 (neutral)
Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com