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Can you say Fiscal Cliff….and I’m sure that you’re tired of it already.

The election is over and within minutes the story was the Fiscal Cliff and perhaps appropriately so being that it really is no laughing matter.  The equity markets greeted the election results and fiscal cliff magnification with a severe decline with the major Indexes having breached some medium term technical points.

As time progressed over the past week or so, it seems as if the fiscal cliff may possibly be addressed in a way that may not hammer the average Joe, as politicians alluded to setting the targets on revenue levels a bit higher for small business tax increases and private individuals as well.  The markets, having achieved some short term downside technical objectives from the noteworthy declines, reacted with a bounce.  The interesting point to note now is that will the markets continue to rebound or was the bounce just a short term anomaly given the rapid rate of the sell-off.

Here are some pearls of wisdom.  The fiscal cliff will be front and center for weeks and weeks to come and knowing the political system…there will be positives and negatives along the way.  If by chance, some deal gets done that looks positive, reality is that the plan won’t be more than a short term band-aid on a very serious long term issue.  To really fix the fiscal cliff, unfortunately a high level of pain will be needed throughout the system and natural market cleansing forces will have to take place.

So what’s in store for the markets?  The recent stock rally brought the major indexes right back into resistance levels.  If the major indexes can add another couple of days of solid gains, it would be enough to negate the technical negatives established a few weeks ago.  If the bears are in control…you may not see the markets post much more upside from Friday’s levels and watch the downside take over again…it’s call a pivot area.


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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