Pre election vix

A potential sell setup is forming, ideal case would be a spike up after the results are in, that would set up a momentum sell

screen-shot-2016-11-07-at-17-53-09

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100 Years of dow jones returns

A quick look at annual returns over the 100+ years of daily percent change (close to close) data that we have on dow jones

import matplotlib.pyplot as plt
import pandas as pd
import numpy as np
import datetime

dj = local_csv("DjiaHist.csv", date_column = "Date", use_date_column_as_index = True)
dia = get_pricing("DIA", start_date = "2016-01-01", end_date = datetime.date.today(), frequency = "daily")

First cleaning up the data, especially the dates. Also adding day of the year into the df in order to sort all returns based on the day of the year and plot em all at once later

dj.sort_index(ascending=True, inplace=True)
dj.index = pd.to_datetime(dj.index)
dj.rename(columns={"Value" : "value"}, inplace=True)
dj["pct"] = np.log(dj["value"]).diff()
dj["year"] = dj.index.year
dj["day"] = dj.index.dayofyear

dia["day"] = dia.index.dayofyear
dia["pct"] = np.log(dia["price"]).diff()
dia = dia.drop(["open_price", "high", "low", "volume", "close_price"], axis=1)
dia.set_index(dia["day"], inplace = True)
dia.fillna(0, inplace=True)

Pivoting the returns table, so that we get returs for all years and all days of the year in separate columns

daily_rets = pd.pivot_table(dj, index=["day"], columns=["year"], values=["pct"])
daily_rets.convert_objects(convert_numeric = True)
daily_rets.fillna(0, inplace = True)
daily_rets.columns = daily_rets.columns.droplevel()
daily_rets.drop(2016, axis =1, inplace = True)
daily_rets.rename(columns = lambda x: str(x), inplace=True)

daily_rets.head(8)

screen-shot-2016-11-07-at-12-28-50

Heres how it looks with all years plotted along with 2016

f, ax = plt.subplots(figsize=(18, 12))
ax.plot(daily_rets.cumsum(), color="#333333", linewidth=1, alpha=0.1, label=None)
ax.plot(dia["pct"].cumsum(), linewidth=2, color="crimson", label="2016 returns")
plt.grid(False)
plt.ylabel("Annual return")
plt.xlabel("Day of the year")
plt.ylim(-0.7, 0.7)
plt.xlim(0, 365)
plt.axhline(0, linewidth= 1, color="#333333", linestyle="--")
plt.legend(loc="upper left")

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Adding the mean returns of all years so one can compare with 2016.
Also added a daily returns histogram so the historical day to day fluctuatios are more clear and positive or negative periods are painted out clearly

daily_rets["mean"] = daily_rets.mean(axis=1)
daily_rets["2016"] = dia["pct"]

plt.figure(figsize=(18, 12))

ax1 = plt.subplot2grid((4,1), (0,0), rowspan=3)
ax1.plot(daily_rets.index, daily_rets.cumsum(), color="#333333", linewidth=1, alpha=0.06, label=None)
ax1.plot(daily_rets["mean"].cumsum(), color="#333333", linewidth=2, alpha=0.8, label="Mean returns since 1896")
ax1.plot(daily_rets["2016"].dropna().cumsum(), linewidth=2, color="crimson", label ="2016 returns")
plt.title("Cumulative 2016 Returns Vs Mean Historical Returns Since 1896")
plt.axhline(0, linewidth= 1, color="#333333", linestyle="--")
plt.ylim(-0.15, 0.15)
plt.grid(False)
plt.legend(loc="upper left")

ax2 = plt.subplot2grid((4,1), (3,0), rowspan=3, sharex=ax1)
ax2.fill_between(daily_rets.index, 0, daily_rets["mean"], where= daily_rets["mean"]<0, color="crimson")
ax2.fill_between(daily_rets.index, daily_rets["mean"], 0, where= daily_rets["mean"]>0, color="forestgreen")
plt.title("Mean Daily Returns")
ax2.grid(False)
plt.xlim(1, 365)

unknown-1

Now that the show is over, its time to look at returns around elections. Up to 1936 the votes were cast in early january, from there on the vote has been in early november, so i used returns from 1936 onward in the calc. Also plotted the mean return of post-election year

daily_rets["el_year"] = daily_rets.loc[:, "1936"::4].mean(axis=1)
daily_rets["post_el"] = daily_rets.loc[:, "1937"::4].mean(axis=1)

f, ax = plt.subplots(figsize=(18, 12))

ax.plot(daily_rets.index, daily_rets.cumsum(), color="#333333", linewidth=1, alpha=0.06, label=None)
ax.plot(daily_rets["mean"].cumsum(), color="#333333", linewidth=2, alpha=0.8, label="Mean returns since 1896")
ax.plot(daily_rets["el_year"].cumsum(), color="darksage", linewidth=2, alpha=0.8, label="Election year mean returns since 1936")
ax.plot(daily_rets["post_el"].cumsum(), color="steelblue", linewidth=2, alpha=0.8, label="Post election year mean returns since 1936")
ax.plot(rets_df["pct"].dropna().cumsum(), linewidth=2, color="crimson", label ="2016 returns")
plt.grid(False)
plt.ylabel("Annual return")
plt.xlabel("Day of the year")
plt.ylim(-0.15, 0.15)
plt.xlim(1, 365)
plt.axhline(0, linewidth= 1, color="#333333", linestyle="--")
plt.legend(loc="upper left")

unknown-2

We can also pull up decade returns. 80’s and 90’s were good times indeed. Applied a 21 day mean to the returns to the trends would be more clear

def decadeMean(start, end):
return daily_rets.loc[:, start : end].cumsum().mean(axis=1)

decade_rets = pd.DataFrame({#"1900’s" : decadeMean("1900", "1909"),
#"1910’s" : decadeMean("1910", "1919"),
#"1920’s" : decadeMean("1920", "1929"),
#"1930’s" : decadeMean("1930", "1939"),
#"1940’s" : decadeMean("1940", "1949"),
#"1950’s" : decadeMean("1950", "1959"),
#"1960’s" : decadeMean("1960", "1969"),
"1970’s" : decadeMean("1970", "1979"),
"1980’s" : decadeMean("1980", "1989"),
"1990’s" : decadeMean("1990", "1999"),
"2000’s" : decadeMean("2000", "2009"),
"2010’s" : decadeMean("2010", "2015")
}, index= daily_rets.index)

mean_rets = decade_rets.rolling(21).mean()

plt.figure(figsize=(18, 12))
mean_rets.plot(linewidth=1)
rets_df["pct"].dropna().cumsum().rolling(21).mean().plot(color="crimson", linewidth=2, label="2016")
plt.legend(loc="upper left")
plt.ylabel("Annual return")
plt.xlabel("Day of the year")
plt.grid(False)

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The most revealing thing about this to me, is that the day to day fluctuations havent really changed over 100+ years – market still behaves the same.

For example, if we randomly reshuffle the order of daily returns of 1910 and compare it to 2015 reshuffled daily returns, its impossible to say which one is which. The nature and behaviour of day to day fluctuations is still the same.

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If anyone can pitch in regarding any mistakes, misconceptions or any other comments, please do – Thanks for your time

Regarding election

What i think is happening is that the Brexit vote is fresh on speculators minds, the polls were dead even before the vote but few actually believed the exits would win. Perhaps we are seeing something similar with us elections right now, meaning (almost) all predictions and polls point to Clinton (Stay), but a surprise like Trump (Exit) weighs on peoples minds.

Here are some of the good research and analysis done
FiveThirtyEight Elections
NY Times 2016 Election