Stock Markets Enjoy the Zogby Bounce
Last week, we saw major polls increase the chances of Republicans winning all of Congress in the 2022 mid-terms. Stocks have always responded positively to the prospect of a divided government, and this time is no different. Anyone claiming the GOP is a bunch of bull may have a point.
From July 26 to October 17, four months, the projections favored a Democrat victory.
Even as half the country relishes the prospect of one party controlling the presidency and half the legislature, stock markets are historically bearish on such developments.
2022 is no exception.
Over these four months, the Dow Jones Industrial Average plummeted 5.2% while the Nasdaq tanked 8.4%.
New Political Winds Push New Market Trends
Over the last week, things have changed.
From October 17 to today, October 25, pollsters have reduced the chances of Democrats taking the senate by 20%, declaring the U.S. Senate race too close to call.
This raises the prospect of a Republican Congress alongside a Democrat White House – something Wall Street has always loved.
Let’s look back:
From January 1993 to December 1994, when both the White House and Congress were Democrat, markets rose 16%. From January 1995 to December 1996, when the government was divided, markets rose 66%
Will the Zogby Bounce Hold?
Polls predict, but the market reaction has been real. Since polls have pointed towards a divided government, the Dow Jones has risen 6.3%.
Does this stick?
Let’s assume, for the sake of personal gain, that the left controls the media.
What do they want the public to feel right now?
They want anyone on the left to start panicking. They want every liberal to be the first in line to vote. It’s interesting how these “panic” polls featured prime time right as early voting began.
It’s in the media's interest to promote polls showing a tight race right until election day.
That’s good for us.
The underlying factor for the current bullish trend should continue until November 8. Even with this week’s bounce, the Dow Jones is still 14% down for the year and the Nasdaq is off 30%.
If we know the direction is straight or up, Zogby and his friends might have given us a cool stock tip.
Trading on the Information
Why do anything radical when there is some easy money to be grabbed.
I am going to buy some stock and sell some calls against them.
The bellwether tech stocks have gotten so slammed that a mere whisper of divided government should keep them steady until election day.
We can buy them and sell calls expiring November 4. By the time the news sends stocks in one direction or another, we will be enjoying Election Night in the VIP section.
The more volatile tech stocks offer a 5% premium to sell at-the-money call options expiring November 4.
If we don’t see any significant change in polls to election day, the political winds are at our backs. We make our move on anticipation that markets will “sit and wait” for the results or steadily rise in anticipation of a divided government.
The Nasdaq 100 ETF (QQQ) has call options expiring at the money on November 4 for a 2.5% premium.
Not bad for 10 days of work.
My Zogby Trade
I am selling covered calls against a tech company just bouncing off a near-decade low. If the price holds steady, the ROI is 4%.
If you want the nitty-gritty of the trade? Check out my Set for Life trading fund.
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