entering more positions.With five contracts, the trader has managed to convert a conservative spread trade into thesame risk and reward as a nonspread trade—perhaps with even higher risk—without addedcapital. The small trader, however, should not leverage spreads to their maximum.
Some trades that derive the benefit of spread margins are not always of proportion-ately less risk. For example, when the IMM began, any two currencies could be spread withreduced margin. A short position in the Deutschemark against a long position in the Mex-ican peso would hardly have been considered reduced risk when the first devaluation ofthe peso occurred. The trader must keep in mind that the decrease in margin, whichaccompanies spreads entered: on the same exchange, will cause a substantial increase inleverage and may counteract the intrinsic risk reduction in a spread that was related to thesmaller price movement. Spreads are not necessarily less speculative or safer than tradinga single net long or short position.: 14
Behavioral Techniques
 
here are some approaches to trading that are directly dependent on human behavior
and cannot be represented by pure mathematics. When viewed in the short term,
most systems will be more representative of behavior than economic factors because,over a few hours of one day, the long-term influence of the trend is very small. The con-cepts presented in this chapter deal specifically with human reactions. Measuring the newscovers an area that has always been important to a floor trader, yet been greatly overlookedby technicians; it offers great opportunity for research. Event trading, which studies mar-ket reaction to price shocks, has become increasingly important for both proactive andreactive traders; contrary opinion takes the form of a poll or consensus of opinions oftraders and market publications. It may help answer the question, “What is everyone elsedoing?”, or at least, “What are they thinking of doing?”
The principal works of Elliott and Gann are included with a review of the Fibonacciseries and ratios, which form a significant part of their technique. The way in which tradersrespond to market moves, and the remarkable similarity that can be found in Nature, giveSerious underlying substance to these methods. Because not all of the assumptions uponwhich these systems are based can be quantified, they are substantiated by the perfor-mance of the systems themselves. Both are fascinating and open areas of creativity essen-tial to broad system development. They are grouped together with discussions of naturalphenomena and the rapidly growing area of financial astrology, all of which should leaveyour grey matter stimulated.
MEASURING THE NEWS
Ifyou can keep your bead when all about you are losing theirs, maybe you haven ‘t heardthe news.Rudyard Kipling"
The news is one of the greatest single elements affecting free trade. As a medium, it carriesboth fundamental and technical information about all markets, directly or indirectly, and isindispensable. If not objective, the news services could materially alter any opinion by theinclusion or omission of relevant information. The impact of news is so great that a specu-lator holding a market position according to a purely technical system would do best notreading, listening to, watching, or in any sense being exposed to news that might be causefor deviating from the system. In a study commissioned by the Wall Street Journal, it wasshown that 99% of the financial analysts polled read the paper regularly, and 92% consid-ered it the “most valuable” publication they read.’
As an element of a trading program or as an indicator of its own, the news is invalu-able. If we could measure the impact of unexpected news, the importance of the WallStreet Journal or the wire service articles, the USDA crop reports and the CFTC positions
‘Adam Smith, The Money Game (Random House, New York, 1967, p. 48).? Frederick C. Klein and John A. Prestbo, News and the Market (Hensy Regnery, Chicago, 1974, p. 3).MEASURING THE NEWS 335
 
reports,® and the anticipation of news, we would have a better view of the direction of themarkets. But first we must be aware of the complications of analyzing the news. There is theproblem of objectively selecting which items are relevant and which sources are mostimportant. The most difficult problem is quantifying the news—how do you rank each itemfor measurement, and on what scale do you determine cumulative importance? Some newsitems are known to have a greater impact on the market—weather disasters, major tradeagreements, key crop reports—but these must be ranked against themselves and otherissues to produce a numerical system of analysis. On a single day, an address by the Presi-dent about foreign trade may be ranked as a +6, a meeting of the Federal Reserve a +7,unemployment a +4, the NAFTA Agreement a +3, a continued lack of rain in the west as a+2, large grain stocks as a 4, anda key article in the Wall Street Journal on the improved Rus-sian crude oil production as a 5, giving a net score of +4 to the news—interpreted as mod-erately bullish. Such a ranking scheme would be considered analytic in nature, because ittries to weigh relevance on a predetermined scale without knowledge of individual effects.
Klein and Prestbo attempted such a study by assigning values of 3, 2, and 1 to articlesin the Wall Street Journal of decreasing importance. Their interest was the stock market,and their work was straightforward and some of the conclusions general in nature. Theyshowed a direct correlation between the relevant positive and negative news articles andthe direction of the stock market. As it was scored over 6-week intervals before and aftermajor turning points in thé Dow Jones Industrial Averages, the news would stay about 70%favoring the current market direction. Having eliminated the -possibility of the marketinfluencing the news, they could conclude that, in retrospect, the market reflected thenature of the news.
The focus of news that influences commodity prices is different from that which movesthe stock market, because it is limited in scope and often specific to the particular physicalmarket. News releases and economic reports are an implicit part of commodity pricing;newspaper releases become very important in the last phase of a long move, which is eas-ily seen when weather is a primary factor, but also when trade agreements are being nego-tiated. For example, traders will watch the weather report beginning in June when therehas been a shortage of rain. They will stay long while no rain is in sight and quickly sell ifa thunderstorm develops over the Chicago Board of Trade building. They will also protecttheir positions going into the weekend, in the event of unexpected rain, then reset theirnet longs on Monday. The news items that affect prices the most are:
Release of economic statistics (inflation, sales, balance of trade, unemployment)Action by the Federal Reserve or other central bankNews relating to the availability of fundsGovernment reports on production and stocksUnexpected news (a potential price shock such as an assassination)“Trade negotiations, agreements, and legislationWeather - —In-depth studies by the Wall Street JournalFront-page news articles (or lead television news) on high prices, strikes, and othertopics with a direct economic impact
Market letters, research reports, and comments from accepted authorities and influ-ential organizations
> A thorough analysis of the CFTC Commitment of Traders report can be found in Chapter 16. It should be notedthat other government reports released on the same day may complicate the interpretation.336 BEHAVIORAL TECHNIQUES
 
Ranking and Measuring ~
The problem of ranking and assigning values to news items requires a knowledge of howothers see the news. Klein and Prestbo studied this problem for the stock market and con-cluded that about 90% of the Wall Street Journal readers perceived news in the same way(bullish, bearish, or neutral). The same relationship can be assumed for futures markets. Areason for the uniform interpretation of the news articles is the publicized analysis. Withinminutes of the release of an economic report or Fed action, the wire services begin toquote independent and poll opinions of the meaning of the report, then transmit thoseinterpretations over their news media to be relayed to most traders. The professionalanalysis is taken as correct, and later discussions based on that interpretation serve tosolidify the opinion.
News can also be measured empirically, by studying the immediate impact of anexpected or surprise news item. For statistical reports, such as the Producer Price Index,care must be taken to use the correct figures. Market reaction is a combination of expecta-tions compared with actual figures, and corrections in the previous month’s data. In somemonths it is difficult to know whether the jump in prices was due to a downward revisionof the previous month, or current values that are lower than expectations. When -testingthese factors, the historic data must include the actual numbers released in the reports,and a separate value for the revision of the previous month. Industry expectations are alsoimportant, but they can be determined empirically from the market’s reaction. Therefore,following the release of an economic report, we can expect the price change to beexpressed as:
Price change = f(a(current value ~ expectations) + b(revision — previous value))
where a and 6 are weighting factors, a > b implying that the current value is more impor-tant than the previous one. It is necessary to make the assumption for this type of mea-surement that the effects of a news release are most important in the short term, and thattheir influence on the market is diluted daily. A starting point for representing the way inwhich the news decreases in value is to modify the standard physics formula:
I= 1=; Cwhere / is the net influence and T is the elapsed time since the release of the news. In sci-ence this relationship, which represents the physical impact declining with the square ofthe distance (or time), applies directly to sound and light.
Measured empirically, the impact of economic reports is worth studying. For futuresmarkets, the CFTC releases its Commitments of Traders report each week (upgraded frommonthly reports). It tells the distribution of holdings among large and small speculatorsand hedgers as a percent of total open interest. This report is watched with the idea thatthe small speculators are usually wrong and the large hedgers right (this is covered in alater section of this chapter).
It is important to understand the difference between the analytic and empirical ap-proach to news. In the analytic method, the value 6f specific events is determined inadvance, and when they occur their preassigned value is compared with the effects. Usingthe empirical method, the historic effects of each event are tabulated and measured, thenapplied to subsequent news items.
The analytic approach has the advantage of working in an environment where multipleevents are occurring simultaneously, and only the sum of all news items can be calculated.When testing the empirical approach, the event of interest may not be clearly distinguishedfrom other news of importance occurring at the same time. Finding situations that isolate aMEASURING THE NewS 337
 
single type of event, from which you can measure its impact, may be impossible. The pri-mary disadvantage of the analytic approach is that it does not account for the discountingor anticipation of the news. An event of modest importance may become neutral or moresignificant relative to other concurrent or anticipated events, the empirical method wouldnot be subject to that problem since it measures reactions and not expectations.
Trading on the News
Even without a sophisticated method of measurement, there are many professional specu-lators who trade on the news. When a bullish news item or report is introduced and themarket fails to respond upward, the experienced trader looks for a place to sell. It showsthat expectations exceeded reality and prices had already anticipated the bullish interpre-tation of the news; there may be a large number of sellers above the market. Similarly,opening calls, available for most markets, are transmitted via wire services beginning abouta half hour before the opening bell. Regardless of the means for determining the openingdirection, an experienced trader may take advantage of a higher opening call to place a sellorder. There are frequent cases of so many traders wanting to sell a higher opening that theinflux of orders after a call, before the opening, has changed the direction from higher tosharply lower on the open.
Agricultural weather markets function purely on news. Traders with long positions waitfor the 5-day forecast hoping for no rain; they anticipate a loss of a specific number of bushelsper acre for every dry day once the rainfall is below a given level. Weather markets are ner-vous and are characterized by evening-up on weekends; they rely heavily on anticipation andemotion. It is said that a farmer loses his crop three times each year: once for drought, oncefor disease, and once for frost. In 1976, the news carried numerous articles on the desperatewheat crop in the western states, showing films of virtually barren fields, and yet the UnitedStates harvested one of their largest wheat crops on record. Weather markets have a historyof volatile anticipation but are a risky way of making long-term price predictions.
The discounting of news is as important as the news itself. An old saying in the market,“Buy the rumor, sell the fact,” implies that anticipation drives the price past the pointwhere it would realistically adjust to news. When the actual figures are released, there isinvariably an adjustment back to their proper level. The pattern of anticipation for eacheconomic report or news event should be watched closely.
Market Selectivity
The market seems to focus on one news item at a time. Although the same factors arealways there to affect prices, they must reach a point of newsworthiness before theybecome the primary driving force. For heating oil, the combination of unexpected, sus-tained cold weather compared with available inventories will activate a weather market.Interest rates, the U.S. dollar, and tension in the Middle East will either be magnified outof proportion or completely ignored, while the anticipation of demand rises sharply. Amarket analysis of shortages not supported by news may as well be discarded—it is moreoften that crowd behavior moves the market.
Media Indicators
In a delightful article,‘ the author Grant Noble argues that the news recognizes eventswhen they are cresting, and most often provides a countertrend trading opportunity. First,the American media should be considered to provide signals in three major time frames:
* Grant Noble, “The best trading indicator—the media,” Technical Analysis of Stocks & Commodities (October 1989).338 BEHAVIORAL TECHNIQUES
 
* Long-term—as given by the large circulation news magazines such as Time andNewsweek. With the timeliness of a brontosaurus, they profile moves over manyyears.
* Medium-term—represented by Barron's, Forbes, and Business Week, cover a periodof about 3 months.
* Short-term—held captive by the Wall Street Journal and the New York Times, whichalso provide intermediate prediction.
By reading these periodicals you find that the Wall Street Journal has run headlines on“killing drought,” “dust bowl,” and the New York Times on “Drought... imperils crucialwheat crop” just as the wheat price makes its highs for the current move. In another case,Barron's cover article asked “Is the bull leaving you behind?” in August 1987. It’s not sur-prising that the media would highlight events only after they have become a popular con-cern, In that sense, we might say that there is a high public consensus, a topic addressed inthe section “Contrary Opinion.” It may be perfectly valid to construct a consensus indica-tor based on the number of square inches of news coverage given to an event in a combi-nation of publications.
EVENT TRADING
The largest price moves and the greatest volatility are the result of reactions to unexpectednews. These market events pose the greatest risks to all traders because they are unpre-dictable and of such great magnitude that they are out of proportion with normal tradingrisk. It may be possible to trade for a number of years without experiencing an adverseprice shock; therefore, many traders do not plan properly for these situations. Those read-ers interested in price shocks and their effects should also refer to Chapter 21 (“Testing”).
Not all price shocks are of such magnitude that they present an unmanageable problem.It may be that price moves are either the reaction to news or the anticipation of news. Thisnews is most often a release of an economic report by a government agency or monetaryauthority, but can also be a natural disaster associated with weather or earthquakes, or a polit-ical event, such as an outbreak of war, a military coup, or an assassination, The U.S. govern-ment releases economic data on an announced schedule, many of them at 7:30 a.m. Chicagotime, that create regular disruptions to price movements in world economic markets.
The frequency and size of these price moves, triggered by unexpected hews, makesthese events a natural candidate for a trading system.’ The profit opportunity, however,does not lie in taking a position ahead of the anticipated market reaction, but in studyingthe systematic patterns that come after the initial price reaction to the news. Because thenews is unexpected, you cannot predict the results nor the extent of the reaction; therefore,taking a market position in advance of a government report would have a 50% chance ofsuccess and often very high risk. Studies might show that there is a bias in the direction ofthe price shock due to the way the monetary authority plans economic growth and controlsinflation; however, the risks would remain high. This section will only look at positionsentered on the close of the event day, the day.on which a sharp market reaction occurred.
oe2
Market Reactions to Reports
To determine whether there is ample opportunity to profit from the price move that fol-lows an event, it is necessary to study the direction of the market move and the subsequentprice changes that occur over the next few days. These lagged reactions are the results ofmarket inefficiencies, it is unlikely that prices could immediately jump to the exact price
5 Ben Warwick, Event Trading (Irwin, 1996).EVENTTRADING - 339
 
that economic principles require, despite the Efficient Market Hypothesis. With large priceshocks there is often an over- or underreaction that is corrected during the next few days.Sometimes prices jump one direction and immediately begin to go the other way until theyhave completely discounted the price shock.
Figure 14-1 illustrates the types of price movements that might follow an upward priceshock. Where there is an underreaction the prices move higher over the next few days;when there is an overreaction prices move lower. Patterns are not as orderly as shown inFigure 14-1 because volatility is high and many traders react impulsively, or by financialnecessity, to the move. To decide whether a market is a candidate for event trading, youmust study the pattern of moves following the reaction to news and decide whether:
1. The size of the average move is enough to generate a profit.2. The returns are worth the risk of loss associated with these volatile events.
When studying these events, there may be a direct relationship between the size of thereaction and the type of pattern that follows. For example, a small reaction to news may befollowed by a steady continuation. of the direction of the price shock. If unemploymentjumps by 4% in a month, there should be a reaction by the government to stimulate jobgrowth. The same initial reaction would occur if unemployment jumped by 1 full percent,but the number would be so unexpectedly large that it may be considered an error inwhich case it is not clear to what extent the government would respond. The market mayoverreact to a large shock but underreact to a small one. The only way to discover this isby testing these events.
Fundamental to understanding price shocks is that the shock is based on the differ-ence between the expectations and the actual reported data, not just the reported data.The market always discounts what it believes is its best guess at what the report will say;therefore, if bond prices rise in advance of an important unemployment report, we can saythat the market expects unemployment to increase. If bond prices have moved up by 4%(equivalent yield) in expectation of a very bad report, and the report comes out neutral,then prices will drop sharply to offset the incorrect anticipation. When studying marketreactions from historic records of economic data, you must have market expectations to
 
FIGURE 14-1 Price reaction to unexpected news, including delayed response. The upwardprice jump on the event day (0) may be followed by (a) a continuation move up or(b) a reverse move down over the next 3 days.
{a)
 340 BEHAVIORAL TECHNIQUES
 
find consistent results; wjthout those values, the best approach is to work backward fromthe reaction to infer the accuracy of expectations.
Measuring an Event
There are many economic statistics released each year, as well as special reports in the WallStreet Journal and other influential periodicals. To record the dates of each news itemwould be impractical for most traders; a simpler approach that might prove effective is toidentify the importance of the event by the size of its reaction. This can be done by com-paring the volatility of the current day with the average volatility of the recent past, usingthe true range calculation:
true rangerogay
volatility ratio =average [rue range ndays
When the volatility ratio is below 1.0, current volatility is less than the average volatilityover the past 2 days. When the ratio is greater than 3.0 we are likely to have identified a dayin which a news event caused a price shock. The larger the ratio, the greater the surpriseto the market. Note that the true range is used because the shock can occur overnight,causing an opening gap, or during the trading session, when the United States typicallyreleases reports. .
Key Government Reports
Even when there is public concern over the state of the economy, the market does not reactin a similar way to all economic data. Some reports seem to be more important than others,and the market appears to focus on one report at a time. The most significant data seem tobe unemployment and the Consumer Price Index (CPI). During a period of sustained lowunemployment, as seen in 1997, even a modest increase will not cause much concern. Ajump in the CPI, however, will always warn the market to expect a preemptive strike by theFed, cutting off potential inflation by nudging rates up slightly. The rade Balance report wasparticularly popular in the late 1980s when the deficit with Japan seemed to be at the root ofthe U.S. deficit. Sagging U.S. exports and overconsumption of foreign-made products byAmericans looked as though the U.S. work force could not compete in the world market.
Other reports can also attract the attention of traders, but may be mote difficult tointerpret. Durable goods, retail sales, budget, and tax legislation all directly affect the econ-omy and prices; however, it is not always clear how to relate the changes in durable goodsorders with price change, or how the latest news on tax law will contribute to the eco-nomic well-being. More important, it is difficult to assess how the government will manip-ulate interest rates in reaction to these data.
Trading the Event Lag
Once you have studied the way prices move following an event day, or price shock, you canestablish trading rules. For example, you find that a change in the Consumer Price Indexof between 0 and +.2% has no particular reaction, provided market expectations were sim-ilar to the data released. A change between +.2 and +.4 or ~.2 and —.4 should give enoughsurprise for a noticeable market reaction, provided expectations were low, and datagreater than a change of +.4 should cause a price shock regardless of the anticipation. Inaddition, we might find that changes over =.4 tended to react in the opposite direction tothe normal government action because of overanticipation.
Based on the results of studying these patterns, Warwick established the followingtrading rules:EVENT TRADING 341
 
1. Buy on the close if the market closes in the upper 20% of the trading range on anevent day (a price shock), if prices have shown a continuation pattern.
2. Hold for a predetermined number of days, based on the lag pattern of the market.
3. Use a stop-loss to limit risk.
In an older study by Arnold Larson® applied to the corn market, it was found that 81%of the price changes occurred on the event day, there was a typical price reversal of 8% overthe next 4 days, and a net change in price of 27% in the original direction over 45 days.Although we should not expect those same numbers now, the pattern of a large move, areaction, and a longer directional move may still be valid.
Results of Event Studies
In his book Event Trading, Warwick shows the test results of some of the major markets,allowing us to compare the effects of the systematic reaction of U.S. bonds with that of theS&P 500 and other markets. Unexpected news that causes bond prices to rally sharply(causing rates to decline) would result in a rise in the stock market, unless the news wasparticularly bad for the long-term economy of the country. Therefore, a drop in the con-sumption of durable goods should be followed by lower interest rates and a slightly laggedupward response in the stock market. This patrern is shown in Table 14-1 where the bondand S&P results are side-by-side. .
In general, we expect a price shock to impact interest rates first, then currency andequities markets. Typically, the interest rates react in a way to compensate for the economiceffects and stabilize the other two markets; this preempts the action that would beexpected from the Central Bank. The exception is when the news is much more extremethan usual, and it affects the stock market first. Investors, because of a lack of confidence,will shift their funds from equities to interest rates.in an effort to find a safe haven duringuncertainty. This will cause a decline in the stock market and a corresponding rise in inter-est rate prices (lower yields), although normally the two will move in the same direction.
In Table 14-1 we can see the way the markets move after both the interest rates andstock market initially react with an upward price breakout. When both markets continue inthe same direction, such as with retail sales, GDP and employment data, then the fullimpact of the data takes longer to be assessed by the market, or there is expectation of
* Arnold Larson, “Measurement of a Random Process in Futures Pricing,” Food Research Institute Studies I (no.3, November 1960, referenced in Warwick, Event Trading).
 
TABLE |4-| Results of Upward Breakout of U.S. Bonds (left) and S&P 500 (right) for thePeriod 1989-1994
 
 
 
= U.S. Bonds S&P 500
Holding Buy or Confidence Holding Buy or Confidence
Period Sell Level Period Sell tevelDurable goods ol B 7 04 B >99Retail sales Oi B 90 02 B 96Retail sales I-5 s 95 24 Ss %CPI Low confidence 0-3 B 92PPI O-5 Ss 95 Oo} B 97NAPM 02 BL 91 O04 Ss 97Industrial production ol Ss 94 Low confidenceGDP - 03 B 90 o4 B 96Employment O2 B 31 ol B 93342 BEHAVIORAL TECHNIQUES
 
some continued response by the government. The PPI and the National Association of Pur-chasing Managers (NAPM) do not show this consistency, indicating that the market takesthis information differently. When the pattern of confidence is low, the market may doagood job of reaching the best price level in immediate response to the news; therefore,there is no consistency in the price move that follows.
Table 14-2 shows the side-by-side test results of reactions that cause a drop in bondprices and a corresponding drop in the S&P 500. The frequency of low-confidence resultsmay represent the conflict between the normal upward bias of the stock market or theunusually bullish trend during the test period. The GDP results, which show the most con-fidence, indicate that the stock market moves higher even when the interest rates rise inreaction to positive GDP data. Trade balance data, which is not always the primary focus ofthe market, has a very consistent pattern, but is not clearly related to the interest rate moveas are most of the other statistics.
Although this work concentrates on the short-term daily reaction to unexpected news,the long-term trend should not be overlooked. Economic data can exhibit consistency overlong time periods, and the response by the Central Bank is usually moderate but consis-tent. If the CPI shows early signs of inflation, then the monetary authority will push ratesup slightly; if this doesn’t work, as seen by the next series of economic reports, they willmove rates slightly higher again. This pattern allows for an underlying trend that can beused to filter the direction of trades and add confidence to the results.
Reaction to Unemployment Reports
Markets treat unempioyment data seriously; because it is a direct reflection of how thepopulation is faring, the government is sensitive to unexpected changes in the number ofpersons filing for unemployment benefits. Using LIM, it was found that when the marketunderestimated the unemployment figure by at least 0.2%, there was an average return of4.5% in the S&P 500 during the following 27 days from the close of the report day. Simi-larly, U.S. 30-year Treasury bonds showed an average return (from a long position) innearly all cases s of 3.2% during the period from 3 to 28 days following the report.”
7 Gibbons Burke, “Event-based Analysis,” Futures (April 1995).
 
TABLE |4-2 Results of Downward Breakout of U.S. Bonds (left) and S&P 500 (right)for the Period 1989-1994
 
 
 
U.S. Bonds S&P 500
Holding Buy or Confidence ~ —_ Holding _ Buy or Confidence
Period Sell Level Period Sell LevelDurable goods Low confidence 02 B 92Retail sales Low confidence “04 B 94Retail sales Low confidence Low confidence ‘cPi O-4 s 7 a Low confidencePPI Low confidence Low confidenceNAPM Low confidence Low confidenceIndustrial production 0-4 s 93 Low confidenceGDP 03 Ss oI 03 B 299Industrial production 3-4 B >99 03 8B 299Employment Hl Ss 93 Low confidence :Trade balance 0-3 Ss 93 0-3 s >99EVENT TRADING 343
 
Presidential Election Cycle
Of all the events that move the market, the Presidential elections have been the most con-sistent. The patterns stem from the motivation of the incumbent party to provide goodeconomic news to the voters prior to the election year, and as far into the election year aspossible. Stock market action during the election year is always more erratic, as parties bat-tle over the value of each other’s actions.
Studies of the 4-year patterns have all yielded very similar results to those shown inTable 14-3.° The year preceding the election (year 3) posts the strongest gains for the mar-ket, followed by a reasonably strong election year. The 2 years after the election showreturns below average as the reality of politics reasserts itself.
There is the additional possibility that there is an 8-year cycle that should be watched;however, the 8-year period should be most informative if it represented only those years inwhich the same President was in office. Actions by a President who cannot be reelected arelikely to be different from one who seeks another term; therefore, we should expect a dif-ferenr pattern. This can be made more intricate by studying the patterns preceding and fol-lowing a change of party, all of which have a fundamental basis in the behavior of thepolitical parties and the voters.
More sophisticated computer software, such as provided by Logical InformationMachines, a Chicago firm, can produce a very interesting, closer view of how voters respondto election politics. Table 14-4 breaks the election year into periods between the key eventsfor those years in which the stock market began the election year within 8% of its 2-year highprice (days refer to business days):
. The returns of the year preceding the election year
. The first 10 days of the new year, typically a strong period (days 0-10)
. Through the State-of-the-Union address and the primaries (days 10-83)
. Waiting for the conventions (days 83-161)
. Preelection blahs—the actual campaign (days 161-195)
. The election to year-end reaction (days 195-253)
. Combined periods (2)