Top 10 Election Trades

Profit no matter who wins

One of the most volatile, catalyst-driven times in the stock market is the U.S. Presidential Election. With volatility comes (trading) opportunity, and with the election coming up on November 5th, it’s time to prepare. In this newsletter, we will be going over:

• What to expect from the stock market during and leading into the election environment

• The main trade ideas to focus on that will benefit from either a Trump or Kamala victory

The overarching opinion is a Trump win would be the most beneficial for stocks. While I don’t necessarily disagree with this, there is almost always an overreaction to the effect that the election will have on the market.

Take 2020 for example, leading into the election there was fear that Biden getting elected would have a large negative effect on stocks. As the election approached, the market sold off from 10/12 to 11/2 resulting in a 9% drop in the S&P 500. This resulted in a classic sell the rumor/buy the news event, as once Biden was elected on 11/3, the market bounced back in a big way.

The simple fact is, whoever wins the election wants the stock market to go up. There are different economic pros/cons with both candidates, but the overall effect on the major indexes will not be too different no matter who wins. The main takeaway with what happened in the market during the 2020 election (and many other past elections) is to fade the overreaction.

In a scenario where the polls start favoring Kamala heavily and stocks drop into the election - expect a bounce back post election.

In a scenario where the polls start favoring Trump heavily and stocks see a rise into the election - expect a pullback post election.

Right now, both candidates are about dead even in polls.

If it stays this way anything can happen, but based on historical seasonality, stocks drop in October of election years. In the October of the past 6 election years, the S&P has fallen each time:

2020: -11%, 2016: -5%, 2012: -3.5%, 2008: -26%, 2004: -4.5%, 2000: -7%

Obviously, each cycle has been very different and there are outliers, but this trend is something to certainly take note of.

Election Trade Ideas:

The best trade opportunities will come from stocks/sectors that will have a binary reaction and are clear winners or losers from the election. As readers know, my trading strategy relies heavily on technical analysis, which will combine with these catalyst-driven trades to make sure that reward vs risk is always in our favor.

Kamala Trades:

There are two main sectors that I’m focusing on as trades for a Kamala victory - the first being solar/renewable energy. Democrats are very supportive of renewable energy, and this sector has historically had large reactions from political catalysts. For example, when Biden won in 2020, the solar energy ETF TAN 0.00%↑ went on a 90%+ run from post-election November 2020 to the beginning of January 2021. After the large post-election run that the sector went on, it has only declined since. Could the sector have another large upside move if Kamala wins? It’s certainly possible.

First Solar (FSLR)

FSLR 0.00%↑ has been the solar stock that has shown the highest relative strength over the past 1+ year. As i’ve written about before, relative strength is one of the most important factors to focus on with trades. If a stock is going up more than its competitors, that is institutions or ‘smart money’ placing their bets that the company will continue to outperform and beat earnings expectations.

The stock had a large breakout move from late May to early June, running up from $200 to $300+ in less than a month. After finding resistance at $300-317 (previous highs), the stock pulled back to around $200 where it found support and has essentially been building out a base since then.

In the bigger picture, this can be looked at as a 14-year long cup & handle pattern with the breakout zone above at $300-317 which can be tradable using the box/range breakout. $220 is also a key level that one could use as defined-risk/stop loss below.

Enphase Energy (ENPH)

ENPH 0.00%↑ was the previous leading solar stock, and saw the largest post-election move in 2020 with a 140% run in the 2 months following. For the past 2 years though, the stock has shown major weakness and is down 70% from late-2022 highs. The weakness is not ideal, but the stock has been building out a large consolidation base since August of 2023 between $93 support and $138 resistance, with a well-defined wedge pattern within it as well.

The wedge can be tradeable using the trendline breakout, and the $93-$138 range can also be tradeable using the box/range breakout. I would argue that FSLR 0.00%↑ is a better odds-on bet for a clean reaction to a Kamala victory, but ENPH 0.00%↑ has more true explosion potential due to how tight and well-defined the range has gotten along with the stock’s track record of making large and fast moves.

Other trade ideas in the sector include NextEra Energy NEE 0.00%↑ and the Solar ETF TAN 0.00%↑. These are less volatile names to trade that would also be great bets for a positive reaction from a Kamala victory.

The other sector that traders should watch closely into the election is the home-building stocks. Kamala released her economic plan which includes:
- Building 3 million new units of affordable housing
- Tax incentives for building starter homes
- $25k down payment support for first time home buyers

This would obviously be a massive positive catalyst for the home builder stocks, which include: DHI 0.00%↑ PHM 0.00%↑ TOL 0.00%↑ and the sector ETF XHB 0.00%↑.

Now, the charts for these stocks are pretty self-explanatory and don’t need much analysis. They’re very bullish charts, making higher-lows and higher-highs, with all of them near highs. Because of this though, a large portion of their upside has likely already been priced in.
In my opinion, this sector may make for the best trade as a short on a Trump victory.

Scenarios I'd watch for:
- Kamala wins, home builders initially get a sell-the-news event and see a 5-10% drop. That drop could be buyable after the news gets sold, because the sector is a legit large beneficiary from a Kamala victory.
- Trump wins, home builders then need to re-price due to the big upside scenario (Kamala’s economic plan) no longer being in play. Anything from a 10-20% drop could potentially be reasonable and offer an opportunity to trade it on the short side.

Trump Trades:

The first Trump trade I’m focusing on is the most simple, and arguably the dumbest one. But hey, sometimes it’s best to keep it simple and follow where the ‘dumb money’ will go, and that’s Trump Media & Technology Corp DJT 0.00%↑. This is the company behind Truth Social, and it will no-doubt be a large mover one way or the other leading into and after the election. The financials of the company are terrible, but the stock obviously does not trade off of any fundamentals - it’s simply a bet on Donald Trump and his popularity.
The key resistance levels/upside triggers to watch would be at $17.3 then $24.8 next above there. A simple way to trade it could be to enter on a break and hold above $17.3 then play it with a tight stop loss back below. If it sees strong follow-through higher you can essentially ride it as a ‘free’ trade with potential for a much larger upside move from there.

If the stock has a large pre-election run, this would definitely be one that would be smart to lock in profits on as there’s high odds for a sell-the-news reaction after the election (even if Trump wins).

Geo Group (GEO)

GEO 0.00%↑ is a clear beneficiary from a Trump victory, and is arguably the cleanest election trade of all. GEO is a private prison company, and was the first company to max out their PAC (donation contribution limit) to Trump’s campaign. This article excerpt from citizensforethics.org lays out how the company benefits from a Trump victory.

Taking a look at the chart, GEO stock went on a 70%+ run from the beginning of January to July 17th when it peaked at a little above $18 per share.

The day it topped is no coincidence, as that is the same day that Trump’s election odds peaked and Kamala started gaining steam.

This reaction tells you everything you need to know for how well-correlated this stock will be with the election result. If Trump gains steam in the polls, the stock is a long and a strong run-up trade into the election. If Kamala gains steam in the polls, the stock is a short leading into the election.

Key levels to watch on the chart include $12.45 key support and resistances above at $14.85, $16.3, $18.05-18.43 (larger range breakout above).

The stock is also testing the key moving average (50 & 200) cluster at $13.22-13.24 which can also act as a key pivot point for the stock.

Bitcoin (BTC):

Bitcoin and the crypto market is also a sneaky Trump trade due to his running mate, JD Vance, who has a pro-crypto stance. Bitcoin’s reaction to the polls shows it’s correlation to the election, as it popped 11% the week that Trump survived an assassination attempt and surged in polls.

A recent Financial Times article titled “A major ad-Vance for crypto” outlines how JD Vance is very pro-crypto and can potentially change how regulators see crypto in the future.

Taking a look at bitcoin’s chart, it looks like it may just be a matter of time before it sees an explosion higher. It has been building out a consolidation base since early March of this year, which would also be the handle of the broader 4-year long cup & handle pattern. When (and if) it breaks to new highs, bitcoin and the crypto market as a whole has potential for an absolutely massive move.

Overall, it’s important to remember that election is a very volatile time for the stock market. Always make risk management the number one priority.

It’s also key to remember that the perception of the election impact is often greater than the actual impact (which results in many sell-the-news reactions after the election). Campaign promises always sound good, but don’t always play out.

*The true post-election winners will commonly run-up to the election, get a sell-the-news reaction after the election, and then see a strong trend higher after that initial dip. The best trade opportunities will be pre-election run ups, and then post-election dip buys on the biggest true winners.