The Election Cycle: What to Expect in Stocks and Bond Prices

NEW YORK ( -- It is that time in the presidential cycle that gets everyone emotional and concerned with the future outlook of the United States.

While everyone has an opinion on who is best for America, I promised myself a long time ago to keep my thoughts to myself for two key reasons: only 50% of Americans will agree with me, and I am Canadian, so I do not experience what Americans go through on a daily basis.

My thinking is if President Obama wins then we will see quantitative easing continue. With the recent positive economic numbers on Friday it should give some confidence to investors that things are slowly stabilizing (bullish for stocks). But if Mitt Romney wins then we could see quantitative easing be cut or eliminated, which is obviously bad for equities.

So, let's just jump into the charts of what I feel will unfold in the next few days and months.

Using the season chart of the four-year election cycle we can see what the Dow Jones Industrial Index has done in past election periods. Obviously, every market environment is drastically different in each situation but overall we see stronger stock price.

This is naturally a very emotional time for investors but once the election is finished most individuals become more confident simply because there is a leader who has four years to make things better, and there is nothing they can do about it now and the campaigning and debating is over.

Dow Jones Industrial Average Exchange-Traded Fund -- Daily Chart:

Looking at the chart of the SPDR Dow Jones Industrial Average ( DIA) index fund you can see a five- to six-month cycle in the market that has a positive skew. Just so you understand what a positive skew is I will explain.

Positive skew is when the market is trending up making a series of higher highs and higher lows. Because there are naturally more buyers during a bull market each cycle upswing lasts longer then when the cycle down downswing.

So you get longer rallies, which sends your secondary indicators (stochastics, volatility, put/call ratios, advance decline line etc...) in the overbought levels for extended periods of time. Those trying to pick a top continually get their head handed to them. The focus must be on buying the pullbacks.

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