The second year of most election cycles have marked important lows that eventually lead to significant gains. Will the same results occur this time around? We think so.

Looking back at past mid-term election cycles, Peter Lee put out a piece I would like to share with you. Lee said that "the mid-term election year has produced a tradable market bottom each time since 1914."

This opinion corresponds well with many technicians that believe a significant market low will be set during the second half of 2006.

Lee said, "we turn to 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 year bottom was put in. We calculated the mid-term low on a daily closing basis to the December 31 close of the following pre-election year. in our findings, since 1934 there were no negative returns based on buying the daily closing price low during the Presidential mid-term year, and holding it until December 31st of the following year.

"There were two occurances where the S&P 500 made a lower low before closing higher that December."

Here are the results Peter Lee's study: