What the Fiscal Cliff Means for Stock Traders

With the focus on the fiscal cliff, Wade Hansen explains why, yes, fundamentals and technical charts do still matter.

   

Video Transcript

We’ve had one of our SlingShot Trader members ask in our weekly live meeting if the market is only following the fiscal cliff, what is the significance of charts or fundamentals?

Typically, we don’t have a scenario where there’s an overarching influence on the market that we have right now where the fiscal cliff is dominating everybody’s outlook and where they feel comfortable putting money.

But with this overarching influence of the fiscal cliff, we do still have individual stocks that are moving on their own. We have fundamental reasons for that, whether that’s an earnings announcements or something like that. We also can look at the technicals on any chart and start to get an idea of where things are going to be going.

We know that the fiscal cliff is dominating these things, so let’s say that for an individual stock, the fundamentals look good and the technicals look good, so everybody is bullish on that stuff. They want to send the stock up higher.

If the fiscal negotiations are going well and everybody is positive about where that may be going, what will happen is it will accelerate this upward movement of the individual stock because not only the fundamentals and technicals on the individual stock positive, but the market, in general, is bullish. The rising tide floats all boats, and those stocks that are already going up on their won, it’s going to be an accelerated growth to the upside.

However, if a stock has strong fundamentals and strong technicals and is moving higher, and the fiscal cliff takes a turn for the worse or the negotiations take a turn for the worse, what will happen is instead of climbing up quite as high, the stock will have some headwinds that it is flying into. It will still be able to move up; it just won’t be able to move up as high.

So, thinking of it as a large plane and whether you are flying into the jet stream or with the jet stream is going to tell us a lot about these stocks.

On the flip side, if you have a stock that fundamentally looks terrible and its technicals look terrible and the fiscal cliff negotiations start to deteriorate, that is going to accelerate that stock’s move to the downside.

John Jagerson and S. Wade Hansen are co-founders of LearningMarkets.com, as well as the co-editors of SlingShot Trader, a trading service designed to help you make options profits by trading the news.  Get in on the next trade and get 1 free month today by clicking here.


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