This report has been prepared by UBS Financial Services Inc. ("UBS FS").
ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 7.
Peter Lee, Chief Technical Analyst, peter.lee@ubs.com
Jonathan Beck, Investment Strategist, jonathan.beck@ubs.com
Wealth Management Research
21 September 2010
Technical Strategist
The Mid-term Election Year Strategy
This report is an updated look at some interesting statistics on the
mid-term election year cycle.
In our previous report, on the subject we noted that the second
year of any 4-year Presidential election cycle (called “mid-term
election year”) had produced a tradable market bottom each time
since 1914.
We also noted that this cyclical occurrence, when coupled with
oversold market conditions, can point to future market advances in
both secular bull and bear markets.
Since the publication of that particular piece, one mid-term cycle has
come and gone (2006), and yet another is now upon us (2010). Thus,
we thought it would be interesting to revisit this study to
1.) see how our forecast fared in 2006, and
2.) note some implications for this cycle going forward.
Basic analysis of the mid-term election year cycle however is nothing
more than cocktail party trivia if we cannot formulate an actionable
trading strategy from it. So once again, we turn to the historical data
to see if past market behavior can give us any clues that can aid us in
our current trading decisions. We have dissected the daily closing
prices of the S&P 500 back to 1934 to see how it performed once the
mid-term election year bottom was established. However, not only
have we calculated the price advance from that mid-term year low to
the following pre-election year high (as done in the Stock Trader’s
Almanac), we also calculated the mid-term election year low on a daily
closing basis to the 31 December close of the following pre-election
year. Why did we choose this methodology? Although the prior
statistic may be much more impressive on a