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EWI InsightHosted by Matt Lampert
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Conventional wisdom says epidemics should make the stock market go down, but we looked at more than 150 years of history and found that epidemics are most likely to occur toward major lows in the stock market or shortly thereafter. By definition, the trend after a major low is for prices to go higher. So if you're a conventional analyst, you might think, "Oh, then epidemics must make the market go up."
Well, that idea doesn't make a lot of sense for starters. And it also leads to some troubling conclusions. For instance, would you then suggest that governments or labs release deadly pathogens after the market's gone down a while, to boost it back up? That's a perverse conclusion, but it's the kind of conclusion you end up reaching when you study the evidence and take the conventional view that markets move based on action and reaction seriously.
Fortunately, you don't have to reach that conclusion because socionomics and the Elliott wave model offer an unconventional way of looking at markets and epidemics that's more consistent with the data. We understand that both markets and society's susceptibility to epidemics are regulated by social mood. Epidemics, therefore, are most likely to break out toward major lows not because one is causing the other but because both are manifestations of the same negative extreme in social mood.
What does the coronavirus outbreak signal about the current juncture in China's stock market? Find out in EWI's new webinar, "Coronavirus: Opportunities in the Chaos." Learn how to watch when you click the link in the show notes or visit elliottwave.com/insight.