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Are Lockdowns Bullish or Bearish for Stocks? Let’s take a look at the FTSE 100 (translated from elliottwave com)


“The market has its own law. He is not moved by external causality … ” Elliott Wave International has long argued – and proven – that events outside the market do not determine long-term price trends. In the short term, news and events can and often do contribute to market volatility – although not always and not always “logically”. But then the long-term trend resumes. We’ve shown countless examples of this on these pages – and here’s one of the most recent: covid-related lockdowns. It can be concluded that investors will view business shutdowns as a result of the lockdown as a sign that stock prices will decline. Therefore, there will be a sale with each lockdown announcement. However, the data show no correlation between market behavior and lockdowns.
Here’s a graph and commentary from our December Global Market Perspective:Are Lockdowns Bullish or Bearish for Stocks?  Let's take a look at the FTSE 100 (translated from elliottwave com) Note the lack of a link between the FTSE 100 and the UK Severity Index, which captures the number and severity of the UK government’s coronavirus response. Stocks fell from February to March this year – with little or no cap – and then rallied from March to May during the UK’s toughest cap to date. Stocks have gradually declined along with the lifting of government restrictions from June to early October. And when restrictions tightened in early October, the FTSE 100 first fell and then rose. In other words, a perfect foresight of the largest and most extensive social constraint in modern history (and possibly in the entire history of mankind) would not provide any useful information that investors could use to trade stocks.

As Elliott Wave International has repeatedly said, financial markets are often ahead of the news. They are not driven by news; the mainstream is simply using the news to justify what the markets have already done. Yes, there are indeed trading days when stock markets are up, when the news is “good.” However, it is often the case that the news is “good” and the stock is falling, and vice versa.

As the classic Wall Street book, The Elliott Wave Principle: The Key to Market Behavior, by Frost and Prechter says:

Sometimes the market appears to reflect external conditions and events, but other times it is completely separate from what most people think are causal conditions. The reason is that the market has its own law. It is not promoted by external causality, to which one gets used to in everyday life experience. Price movement is not a product of news … The market is developing in waves. Waves are patterns of directional movement.

translation from here

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