State of the Race

Although the national "horse race" number should be considered a crude tool, these Intrade numbers provide a general outlook on the Republican primary race. The key points are that Rudy is in steep decline, Huckabee has peaked and McCain has gained some ground. As for Romney, it is clear that he suffered from the "Huckaboom", but is now seeing his numbers bounce back as Huckabee's fifteen minutes of fame are over.

Chartists will note that the Romney recovery has formed what is known as a "cup and handle" configuration. Made famous by William J. O'Neil, founder of Investors Business Daily, the "cup and handle" chart configuration is a classic "buy" formation. A stock rises to a certain point (forming the left side of the cup), pulls back and rises again to a point just less than its previous high (forming the right side of the cup). It then declines slowly for a short time (forming the "handle").

Under this charting theory, the stock then shoots up. The time to buy is thought to be when the handle shows a price less than one third from the top of the right side of the "cup", or in the case of Romney's presidential prospects, now.

(One caveat to note. Although the theory expects the right side of the "cup" to be somewhat lower than the left side, the Romney price is substantially lower. This is known as a "weak right side cup", and is an indication that the formation is less valuable as a predictor of future price rises.)

Obviously, a "cup and handle" chart formation is no guarantee of future success. But it does suggest that an investment (in this case, the "chance" that Romney will win the nomination) is performing well. The market for Romney is absorbing information (the Huckabee boom and other news) and continuing to sustain its price.

The Romney "cup and handle" chart pattern indicates that there is a better than even chance that the Romney price will make new highs in the near future. Owners of the this investment (myself included) can only hope that Mr. O'Neil's charting theory holds up in the political prediction markets.