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Odds of GOP Retaining Congressional Control

Posted By Barry Ritholtz On October 8, 2006 @ 8:51 am In Politics,Psychology,Technical Analysis | Comments Disabled

A recent comment to yesterday’s Citibank Panic/Euphoria discussion [1] led to this post being inserted in the weekend linkfest:

According to Tradesports [2], the odds of the Republican Party retaining control of each Congressional House in the 2006 Mid Term Election is mixed.

In the Senate, only one third of the 100 seats are up for re-election. Votes are staggered, so every 2 years a different third of the 6-year term seats come up. The odds strongly favor GOP retention of the Senate. The Democrats would need to capture 6 seats, something previously viewed as rather unlikely — not impossible, but unlikely.

Although several races have tightened, this remains a long shot for the minority party. The MSM is, as always, focused on the horse races but not the issues. See Race for Senate control tightens [3] for example.   

When we go to the most recent betting on the outcomes, the senate appears to be rather safe. Using trend or technical analysis, we see the GOP retention of Senate has been consistently above 70%; It has recently dipped as Tennessee and Virginia — formerly "safe seats" — have become competitive.  But it would take a significant break of 70 to suggest this was anything but a long-shot.

>

Senate Trading

Ts_senate [4]

via Tradesports [5]

>

When it comes control of the House, however, the prediction markets present a very different picture. All 435 seats are up for grabs. 

Its also one that lends itself even more to TA:

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Ts_house [6]

via Tradesports [7]

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From last November til today, we see a fairly well maintained down trend. Recently, that was almost reversed on an increase in volume since hitting lows of 40% in September. That was most likely the result of a 30% drop ingasoline prices, a 20+% in Crude Oil prices, and a strong post summer rally in the stock markets.

However, the Foley/Page scandal has now reversed that. On even bigger volume, the downtrend has been maintained, and the House odds are once again near low 40s.

If the election were held today, the Senate would stay GOP, while the House would shift to the Democrats.

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There 2 additional notes:  I have long complained that the relative thinness of these markets — the
number of traders and the dollar amounts at issue — can make their
results somewhat suspect. For more on this, see our 2004 critique, Iowa and Prediction Markets [8].   

Second, I do not want to see the comments devolve into a political shooting match. The topic at hand is the odds of a change in the Senate/House control — not the specific politics of each party. (For the record,  I am an Independent).


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2006/10/odds-of-gop-retaining-congressional-control/

URLs in this post:

[1] Citibank Panic/Euphoria discussion: http://bigpicture.typepad.com/comments/2006/10/citibank_says_w.html#comments

[2] Tradesports: http://www.tradesports.com/aav2/trading/tradingHTML.jsp?evID=35889&eventSelect=35889&updateList=true&showExpired=false

[3] Race for Senate control tightens: http://www.usatoday.com/news/washington/2006-10-05-state-races_x.htm

[4] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/ts_senate.png

[5] Tradesports: http://www.tradesports.com/aav2/trading/contractInfo.jsp?conDetailID=291848&z=1160311109718

[6] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/ts_house.png

[7] Tradesports: http://www.tradesports.com/aav2/trading/contractInfo.jsp?conDetailID=291849&z=1160310853630#

[8] Iowa and Prediction Markets: http://bigpicture.typepad.com/comments/2004/01/iowa_and_predec.html

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