Published on: June 1, 2024
On the 4th of June 2024, the results of the national parliament election for 2024 will be announced. From the evening of the 1st of June 2024, exit polls will begin to circulate. Despite the fact that the reliability of the exit poll cannot be guaranteed, the market is expected to react to it on Monday, 3rd June 2024.
Nobody knows the election outcome. In terms of the market, a stable government is a positive development.
The basic premise of technical analysis is that price discounts everything. Obviously, many factors can influence the outcome of the election, but it would be interesting to study the chart setup prior to the election.
Let’s examine the chart setup before the last five Lok Sabha elections.
1999
The election results were announced on 6th Oct 1999.
Below is a Point & Figure chart of the Nifty during 1999. D Smart indicator is applied on the chart.
The arrow marks the setup before the election results are announced. It was a double-bottom sell signal, but the price was above the indicator, indicating that the trend was upward before the election outcome.
The candlestick chart below shows the candle on the result day and the following few days.
Following the announcement of the poll results, it was a bullish day. Returns for one week were 7.44%, and returns for one month were -2.02%.
2004
The election results were announced on 13th May 2004.
Below is a Point & Figure chart of the Nifty during 2004.
The arrow marks the setup before the election results are announced. It was a positive column reversal followed by a bearish anchor column. The price was below the indicator, indicating that the trend was bearish before the election outcome.
The candlestick chart below shows the candle on the result day and the following few days.
It was a strong, bearish day following the announcement of the poll results. The indices had a lower circuit on that day. Returns for one week were -10.11%, and returns for one month were -13.18%.
2009
The election results were announced on 16th May 2009.
Below is a Point & Figure chart of the Nifty during 2009.
The arrow marks the setup before the election results are announced. It was a positive column reversal, and the price was above the indicator, indicating that the trend was bullish before the election outcome.
The candlestick chart below shows the candle on the result day and the following few days.
The market traded on 18th May after the election result. It was a strong, bullish day following the announcement of the poll results. The Nifty had an upper circuit on that day for the first time.
Returns for one week were 15.44%, and returns for one month were 23.05%.
2014
The election results were announced on 16th May 2014.
Below is a Point & Figure chart of the Nifty during 2014.
The arrow marks the setup before the election results are announced. It was a substantial anchor column, and the price was above the indicator, indicating that the trend was bullish before the election outcome.
The candlestick chart below shows the candle on the result day and the following few days.
There was a strong bullish trend during the poll outcome. However, the market sold off in the second half of the session and closed below its opening level. In the days leading up to the election, there was a strong rally, and perhaps the outcome was discounted.
Returns for one week were 2.28% and one month’s were 4.59%. Following that, the Nifty and Sensex never looked back and never returned to those levels.
2019
The election results were announced on 23rd May 2019.
Below is a Point & Figure chart of the Nifty during 2019.
The arrow marks the setup before the election results were announced. There was a strong bullish anchor column above the indicator, indicating that the trend was bullish before the election outcome.
The candlestick chart below shows the candle on the result day and the following few days.
There was a sell-off in the second half following the announcement of the poll results. Returns for one week were 2.48% and returns for one month were 0.58%.
2024
Below is a current Point & Figure chart of the Nifty.
The price is in column’ O’; however, it’s a bullish double-top breakout pattern, and the price is above the indicator showing the uptrend before the election outcome.
Studying the setup involved some additional studies. Additionally, I tested it on multiple box values. I’ve kept it simple here to give you a better idea.
Five elections are not enough of a sample size. This was to give you an idea of how the chart was set up before the major event. Each period’s one-week and one-month returns were discussed to show the short-term trend that follows after the poll outcome. As can be seen, the same-day or one-week trend usually continues for the next few days.
From Ballots to Stock Markets
The general election results significantly impact the stock market. Investors and traders closely monitor these outcomes to adjust their strategies accordingly.
Options traders build various strategies to play the election outcome with the multi-leg – that’s a quick momentum trade. But…
Should an Investor worry about it?
Let’s understand the market reaction to the election outcome.
1. Immediate Volatility
Election results often cause immediate market volatility. The uncertainty since the start of the voting period has kept India’s VIX (Volatility Index) high.
Investors react quickly to new political scenarios but should be calm during these market phases. The volatility decreases, and the markets are normal for long-term play.
Hence, you should ask yourself – do I enjoy the roller-coaster or a smooth ride?
2. Sector Impact
– Different sectors respond uniquely, and this is where an investor should focus.
– Policy changes favouring specific industries cause sector-specific movements.
We derived the sector’s performance for one month from the day election results in 2014 and 2019, with the BJP winning both elections.
The CPSE, Realty, and Infra are common in both performance tables as this government has focused on these spaces.
3. The Year of Positive Close
As markets don’t go up in a straight line, the Nifty has managed to end the election years positively, although volatility may persist throughout the year.
4. Economic Growth
As an investor, your focus should be on long-term economic growth. Policies promoting growth positively affect stock prices, and the BJP’s last couple of terms have been oriented towards India’s growth story. If the BJP has its third term, investors should look for long-term stability and growth-perspective stocks.
We strongly recommend caution and hedging the positions. The market does not give prior notice before reversing, so it is a good idea to hedge and reduce positions before the big event. You can trade once the outcome is clear. The market is open every day with an infinite number of opportunities!
Investors should wait for the daily closing on election result day, open their RZONE, and scan the “All Chart Matrix” to check for a stock with a strong bullish trend. If they look from a fundamental basis, they should check our Radar platform.
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