Wednesday, October 28, 2009

Technical Analysis of Presidential Approval Rating Chart

If I am to apply technical analysis of stocks to Presidential Job Approval number of likely voters as published by Rasmussen Report, here's what I see.

A declining trend line and inability of the index to recapture the trend line:

A steady decline from the January high. Almost a inverse correlation to the stock market move so far, and in sync with the decline of U.S. dollar. In late May, there were a few attempts to regain and surpass this trend line, but they were unsuccessful. But those failures were to be expected, because, as you can see just prior to those attempts, there was a rising wedge formation in the downtrend (bearish). So, sure enough, after failed attempts, the index resumed the downward trend.

After impulsive low (dipping to 45%) sometime in late August-early September, the index has found the range between 48% and 52%. But again, a weak attempt to regain and surpass the downward trend line was unsuccessful (red arrow in the chart), and the index has recently dropped down below 50% and is oscillating in a very tight range. If I could superimpose the bollinger band, the band would be very narrow, indicating a very low volatility.

A break seems imminent. It could be up, it could be down. We have to keep an open mind. If it is up, the first target is the trend line at 52% or so. If that happens, and if it is to be a trend change, the index has to break above it in a convincing manner. If it is down from here and now, it can threaten to break 40%. If it first goes up near the trend line and then goes down, the drop may still be to the low 40s if the previous two downtrends are any indication. Trend is your friend until it isn't, as many swing traders would say.

Potential trigger for the move: passage of House health care "reform" bill. (The decline in June may have been triggered by the passsage of House climate bill.)

Also, if the stock market declines sharply from here (trigger: 3rd Quarter GDP number tomorrow) and U.S. dollar appreciates sharply from here, the job approval index may recapture the trend line and surpass it, marking a definite trend change.

Some of you may get indignant, even offended, to analyze the presidential poll number as if it were a stock. But come to think about it, it's all about sentiment, poll and stock.


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