Head Fakes on Election Night:
What Past Elections Reveal
Preparing for Potential Head Fakes in the Election Markets
One way of getting a feel for price action during elections is to review prior elections and observe any similarities.
Now of course, no two elections are the same. Each has its own backdrop, candidates, policies, and other factors that shape how the market responds.
But I think it makes sense to study recent years and look for some common themes.
So, I went back to 2008 and pulled up the intraday 15m charts of the S&P 500 futures, plus the broader economic context.
Here’s what I found…
S&P 500 15m CHARTS
November 3rd, 2020 Election. Trump vs Biden (Biden won)
Backdrop:
COVID-19 pandemic, stimulus discussions, and uncertainty over potential lockdowns.
Market Action:
Volatile pre-election, then a rally post-election as Biden’s win became clear. Markets cheered the idea of a divided Congress, limiting major policy changes like tax hikes. The NASDAQ outperformed, tech being a safe haven. Volatility dropped as election uncertainty cleared.
November 8th, 2016 Election. Trump vs Clinton (Trump won)
Backdrop:
Economic recovery, but a lot of uncertainty around Trump’s unpredictable policies.
Market Action:
Futures plunged overnight as Trump’s victory became clear, but the market rebounded sharply the next day. Why? Traders saw opportunities in deregulation, tax cuts, and infrastructure spending. The “Trump rally” was fueled by pro-business sentiment.
November 6th, 2012 Election. Obama vs Romney (Obama won)
Backdrop:
Concerns over the fiscal cliff, global debt crises, and slow recovery from the Great Recession.
Market Action:
Obama re-elected. Stocks dropped sharply post-election due to fears of higher taxes and regulatory pressure, especially on energy and financials. Markets recovered later, buoyed by Fed policies and avoidance of the fiscal cliff.
November 4th, 2008 Election. Obama vs McCain (Obama won)
Backdrop:
Global financial meltdown, the Great Recession was in full swing.
Market Action:
After Obama’s win, markets tanked further due to fears of worsening economic conditions. But longer-term, Fed intervention and stimulus plans helped stocks recover in 2009.
In all cases, markets first react to uncertainty, and then shift based on perceived policy directions.
Stimulus, taxes, and regulation are the big movers post-election.
So, is there a trade idea we can build from that?
TRADE INSIGHT: THE HEAD FAKE
One striking similarity stood out: in all years except 2008, price initially faked out in one direction before reversing.
This knee-jerk reaction often flipped several hours later, as narratives shifted and traders scrambled to adjust.
Timing: The initial move tends to start between 7 pm and 9 pm EST.
This is something to consider as part of your game plan: the first move is often not the “real” move.
Of course, it’ll depend on the results and information flow, but if history is any indication, a head fake is worth watching for.
Even if you don’t trade the S&P 500, this pattern has shown up in other markets as well (sometimes inversely).
Here’s the Dollar Index from 2020, starting its own first head fake at 7 pm.
So for me, planning around that potential initial head-fake will definitely play a role in my election trading strategy.
It might be something to consider if you’re trading the event…
As they say, “History doesn’t repeat itself, but it often rhymes.”