Is It Bullish When Stocks "Ignore Bad News"?

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Is It Bullish When Stocks "Ignore Bad News"?
You can only answer that if you look at the market's larger context: bullish or bearish.

By Vadim Pokhlebkin
Fri, 06 Jul 2012 17:30:00 ET

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You may have read the headline above and thought, "That's a silly question to ask on a day when the DJIA closed 124 points lower after a disappointing U.S. jobs report..."

Yet on more than one recent occasion, I've seen financial TV interviewers ask experts this very question: "Is it bullish when stocks 'ignore bad news?'” The answer the experts give is invariably, "yes."

But please read what EWI President Robert Prechter, a market analyst with more than 40 years of direct market experience, says about that:

Is It Bullish when the Market “ignores Bad News”?

(Excerpted from Prechter's November 2005 Elliott Wave Theorist)

Many people claim that the market’s failure to “react” to the bad news -- or its ability to rally in the face of it -- is bullish. This idea is a myth. It is borne of the useful observation that during the early months of a bull market, stocks rise despite continuing bad news.

But there is another time when the market goes up while news is bad: during bear market rallies. An excellent example, as detailed in [my] Pioneering Studies in Socionomics, is the market’s rally from September 2001 to March 2002 despite anthrax attacks and the Enron scandal. When those events ended, then the market turned down.

[Conversely,] when a bear market is in force, people act in accordance with the long term deterioration in mood, which continues despite periods of near term improvement. This “crazy” behavior is nicely coordinated to fool investors, who typically try to make sense of the market in terms of its reaction to news.

So, the answer to the question "Is it bullish when stocks 'ignore bad news?'” can only come when you look at the stock market's larger context.

Our latest analysis tells you now whether the current context is bullish or bearish.

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Tags: Bear market, bull market, Dow Jones Industrial Average (DJIA), risk appetite, Robert Prechter, S&P 500, social mood, socionomics

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