Election Trade Setups Part 1

As we approach the final hours leading up to the election, it is time to scan the markets to see what opportunities have been provided. Due to the uncertainty that has been demonstrated throughout this run, the logical place to begin is gold. XAUUSD has been pulling up since the beginning of October, but has seen a consolidation develop recently, as seen in Figure 1.

Figure 1: The Consolidation and Blue Box Support Zone in the XAUUSD Hourly Chart

With Clinton’s email issue finding some respite in the past few hours, it seems quite likely that the flight to gold that has been going on will also ease a little more. Statistically, support is likely to turn out to be in the 1271.14-1280.53 range. Any unexpected uncertainty will cause XAUUSD to bounce up quickly from this zone, and the hourly chart seems a good one to monitor this from.  Potential trade setups would involve various triggers, including candlestick reversal patterns (morning stars etc.), moving average crosses (fast ones – the 20 MA is likely to prove to be too slow for this) and divergence.

Although attention traditionally turns to equities at election time, we find the setup to be somewhat less palatable than usual. Figure 2 shows that there has been some anticipated optimism already after the weekend, in hopes of a “favourable” election result, whatever that might mean to the majority.

Figure 2: Jump in SPX500 Four-Hourly Charts and Overhead Resistance

This means that the profitable decision will only be made to the downside, if it occurs. Price is already close to activating its Blue Box at 2117.74-2125.37. This situation is not the best, but it is a valid setup for those who wish to monitor triggers, especially through the use of bearish candlestick reversal patterns. There is every chance that this Blue Box will break if the election results in euphoria, so be especially defensive with this setup.

Those who would prefer to stay away from the heat of the moment can choose to engage in cross opportunities. CHF and JPY, both (somewhat) currencies that traders might choose to fly to, is also at a potentially stalling point, just short of its resistance range at 107.28-107.78, as shown in Figure 3. The timeframe in question is the four-hourly.

Figure 3: Overhead Resistance on CHFJPY

Finally, traditionalists who believe that such a momentous occasion should only be played on the anti-dollar can monitor the supportive hourly Blue Box on EURUSD, as shown in Figure 4. The range is 1.0992-1.1026.

Figure 4: Hourly EURUSD Support

It is worth noting that, as with all major events, the large potential rewards all have to do with bucking expectations, and the Blue Boxes reflect that. This election is unusual in many ways, and expectations are unlikely to be uniform, even amongst larger players. Thus, traders should be advised to account for sudden volatility swipes as results are announced.