For many, the 2016 U.S. presidential election results were surprising. The markets do not like surprises. On a normal election night, it is common to see a sell-off with significant volatility. What happened on Nov. 8, 2016 was something different, and is considered one of the biggest market drops since the Sep. 11, 2001 attacks.
Throughout the campaigns and early into the vote result totaling, Hillary was the projected winner. As soon as the electoral college began showing signs of Trump taking the lead, the market responded. At about 10:10 p.m. US/Eastern, the E-mini S&P price was at around 2150.75. The ATR (Average True Range) was at about 7.58. For overnight trading and even day trading, this is considered quite high. Then as the media began declaring Trump as the projected winner for many states, the market crashed. The E-mini S&P dropped 122.75 points in the span of about two hours and 15 minutes.
If you dared went short and held on to it, you could have been a very rich person. We don’t advocate that kind of trading for good reason, but more on that later. In any case, the election results impacted the markets worldwide. In fact, many news outlets reported significant drops in the Asian markets.
Can You Trade This Volatility?
Election night comes around once every four years. And when it does, you can expect volatility, but how much is anyone’s guess. Another thing – this election has made many doubtful on the accuracy of polling and big data in general. Most polls, with the exception of the LA Times and a few others, were highly inaccurate. In fact, most showed Hillary with a substantial win. A Trump victory, let alone a landslide, was nowhere in the cards. If the advanced algorithms and humans pollsters could not predict election results accurately, then how you can feel confident placing any trade during election time?
John Paul stays out of markets when they’re too volatile – you’ve seen this from our other videos. In this webinar, John Paul reviews several trading strategies to gauge risk. One thing he points out is how after large candles or very large moves that we saw from the election is to expect a retracement. By the way, after the 122.75 points, the market retraced and exceeded the previous high by 11:30 a.m. the next day, November 9.
Since then, the market has stayed above 2150.75, but remains more volatile than normal. Trump takes office in January, 2017. Until then, we can expect more controversial news, and therefore more volatility.