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The big secret to my success isn't superpowers; I can't see the future, or through walls, for that matter.
The secret? I stick to rules. I'm a rules-based trader, which means I use repeatable, historical patterns and other hard data to trade the same way – and win the same way – year after year.
That's what's helped me to become wealthy, and it's what's helped me deliver my readers 27 chances at double- and triple-digit gains in 2020.
One pattern I trade every four years is the one that crops up around presidential elections. Even in an absolutely crazy year like this, the pattern's there. It's consistent. And we certainly could use some consistency right about now.
I'm here to tell you: Anyone who sees it can capitalize on it, and today, I'm going to show you exactly how to do that in every case…
From Pennsylvania Avenue to Wall Street
So we can make the best, most profitable trading decisions, let's run down some quick facts. They really drive home the profit power of this pattern, and, if you're an American history buff, they're pretty interesting – almost spooky, even…
- The S&P 500 is the most bullish in year three of a presidential term.
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Investopedia provides the following data from a 2016 Charles Schwab report, illustrating the average S&P 500 performance during each year of U.S. presidential terms going back to the Truman administration in 1950:
Year one: +6.5%
Year two: +7.0%
Year three: +16.4%
Year four: +6.6%
The first and most important thing to note is that on average, the S&P 500 goes up each year of a presidential term. It's just that, historically, year three is by far the best performing.
- The stock market performs better, on average, under a Democratic president.
Adjusted for inflation and based solely on statistics, the Dow Jones Industrial Average annually gains an average of 3.8% under a Democratic president and 1.1% under a Republican president.
- When an incumbent Republican wins reelection, the year-end gains are stronger.
The last two months of the term produce the biggest market gains when an incumbent Republican extends the lease on the White House. The opposite is also true:
- If the incumbent Republican president loses, you can expect a short-term move to the downside by the end of the year.
So, with all these patterns in mind, deciding what to do next couldn't be simpler. Just get ready to make your short-term bullish move on Nov. 4, or whenever the election is settled.
How to Pull in Big SPY Profits No Matter What
If Trump wins, set your time horizon from November to December, 2020. Buy the SPDR S&P 500 ETF (NYSEArca: SPY), sell on Dec. 31, 2020.
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To boost those returns, buy SPY Jan. 15, 2021 calls – go one or two strikes out of the money (OTM). Remember, you're bullish, so aim for strikes above where SPY is trading on Election Day.
The pattern is just as clear should Biden win. Go short-term bearish. Sell the SPY short once we get a final result; buy to cover on Dec. 31, 2020. If you want to go long, take a small chunk of capital – something you can afford to risk – and buy into an inverse S&P 500 exchange-traded fund like the ProShares Short S&P 500 ETF (NYSEArca: SH).
You can boost those bearish gains in a leveraged "UltraShort" ETF, like the ProShares UltraShort S&P 500 ETF (NYSEArca: SDS) – that'll bring in twice the decline in the S&P 500, but do keep in mind that this is an extremely short-term move; don't risk what you don't feel comfortable with.
You can go supercharged and buy SPY Jan. 15, 2021 puts a few strikes out of the money, lower than where it is on Election Day.
I'm so convinced of the power of these patterns that I'll even do one better. This is kind of like Babe Ruth pointing into the stands at where he's going to send his next homer.
Get ready to go long – really long. And get ready to shoot me a thank-you note in 2023 when you bank as much as 160% in pattern-generated profits…
Here's Your "Bonus" LEAP Trade
It makes sense to own SPY for the long term, given what we've seen here today. If history is a good guide, and it is, 2023 should be the next big "up" year, where you can expect at least 16% gains, on average.
The cool thing is, you can get a head start on boosting those expected gains.
On Jan. 2, 2023, buy a January 2024 call option, again, two strikes or so out of the money, and hang on for the ride. This option offers a tenfold increase in ROI, so if the pattern holds up, you'll collect a cool 160%.
These patterns are reliable; like any repeating patterns, I trade them whenever they appear. That said, 2020 being 2020, there are some, let's say, X-factors out there, like the pandemic. So please remember to use sensible position sizing and money-management techniques.
And in the meantime, this could help double your money in 100 hours…
My team and I have just put the finishing touches on a research presentation on an incredible phenomenon, something I'm calling the "Four-Day Profit Cycle."
This extremely short-term pattern outperformed the S&P 500 by nearly 17% in the first eight wild months of 2020. You've got to see for yourself how it works, because playing the pattern correctly could help you to double your stake in under four days. Watch now…
About the Author
Tom Gentile, options trading specialist for Money Map Press, is widely known as America's No. 1 Pattern Trader thanks to his nearly 30 years of experience spotting lucrative patterns in options trading. Tom has taught over 300,000 traders his option trading secrets in a variety of settings, including seminars and workshops. He's also a bestselling author of eight books and training courses.