But there will be many twists and turns, so today I'd like to give you a glimpse of what to expect.
First, let me be absolutely clear -- my goal is to show you ways to make money, not to get into political philosophy. It doesn't matter if you prefer one candidate over another, or if you think that there's no difference between the political parties. All I care about is what the sentiment indicators are telling me, and how we can place our money accordingly.
We are already seeing some of these sentiments affecting markets. But things will really start to ramp up after Labor Day, and all the way up to Election Day in November.
Polls predicting a close election will cause markets to hesitate right before the election. Also, a pre-election imbalance in sentiment favoring Obama or Romney will likely be reflected in market patterns.
Then there's the election itself. The results could generate a massive market move in either direction.
The challenge for us is to focus on which underlying markets will provide the best way to trade the election.
There are several, but one immediately comes to mind: Gold.
Gold will likely have a major reaction to the election results because it reflects anxieties about the nation's future fiscal position, as well as its monetary direction.
Take a look at the following chart, showing the price of gold overlaid against increases in the U.S. debt ceiling.
The rise of gold has been in sync with the rise of the U.S. debt limit, reflecting fear of potential debasement of the currency as well as financial collapse.
But why did gold stop rising? Is it profit taking, or is it a reaction to a change in the expectations relating to U.S. debt? Of course, gold enthusiasts also have to explain why gold is not a safe-haven basket for an anticipated collapse of the Eurozone. Instead, German bonds and the U.S. dollar and the yen have become the markets' refuge for capital.
In any case, those who anticipate a rise in gold in the near future need to consider the upcoming U.S. elections and their potential implications as an event trigger for gold moves.
My view is the following:
The election of Romney could very well be bearish for gold, since Romney and his team will be perceived as debt-averse and QE3-averse.
There are also some considerations from the technical analysis side.
First, we see a classic pre-breakout pattern in the shape of a descending triangle. The shape is bearish because there are lower highs forming and very little in the way of higher lows. Gold bulls are in trouble.
Another clue supporting a bearish technical view for gold is the change in the persistence of bullish moves. Sentiment is confirmed technically in a market when there is an ability to generate new weekly highs or lows without reversing. I call this ability "the persistence of sentiment," and it is a good measure of trend strength.
The chart below shows consecutive weekly gold high closes and consecutive weekly gold low closes.
Let's start with October, 2008. Gold hit a low of 723 and then proceeded to score 10 consecutive new weekly highs before it reversed. The next sequence of new weekly highs started in May of '09, where gold had a run of being able to score 12 new weekly high closes.
When gold ended this long sequence, the pattern broke down, and gold has shown an inability to resume a significant series of new weekly high closes. It only recently reversed into a pattern of three new monthly highs, but quickly reversed back down into the most recent three new monthly lows.
Gold is now on the precipice of a major breakdown -- unless the U.S. elections become an event trigger for bulls or bears.
This is exactly the kind of hotly-charged situation that makes traders like myself salivate. From now through the election, wild swings in market sentiment should make for a ton of "low hanging fruit" trades, and binary option trades, which only last one week at a time, are a perfect way to play this kind of "event risk" as sentiment goes back and forth.
Just last week, I made 11% in 5 days on a binary trade, and all of my years of experience tell me that, with the election looming, that's just the beginning.
The Tycoon Report