Bull market
A bull market tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of future price increases and future capital gains. In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as a herd. This is especially relevant to participants in bull markets since bulls are herding animals. A bull market is also sometimes described as a bull run. Dow Theory attempts to describe the character of these market movements.
India's BSE Index SENSEX was in a bull run for almost one year from January 2007 to January 2008 as it increased from 14,000 points to 21,000 points. Another notable and recent bull market was in the 1990s when the U.S. and many other global financial markets rose rapidly.[4] The United States was described as being in a secular (long term) bull market from about 1983 to late 2007, with brief upsets including the Panic of 1987 and the NASDAQ crash of 2000-2002.
[edit] Bear market
A bear market is described as being accompanied by widespread pessimism. Investors anticipating further losses are often motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was preceded by the Wall Street Crash of 1929 and lasted from 1930 to 1932, marking the start of the Great Depression.[5] A milder, low-level, long-term bear market occurred from about 1973 to 1982, encompassing the stagflation of U.S. economy, the 1970's energy crisis, and the high unemployment of the early 1980s.
Prices fluctuate constantly on the open market; a bear market is not a simple decline, but a substantial drop in the prices of the majority of stocks in a given market over a defined period of time. According to The Vanguard Group, "While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period."[6]
Investors frequently confuse bear markets with corrections. Market corrections are shorter than a bear market and have a total measured decline of less than 20%[citation needed]. Bear markets on the other hand occur over a longer period with typically greater magnitudes of decline in prices from top to bottom. The distinction between the two is not absolutly clearly when there is a price decline between 15% and 20%.
[edit] Secondary market trends
A secondary trend is a temporary change in price within a primary trend. A secondary trend usually last between a few weeks and a few months. Two examples of a secondary trend are: 1) a market correction 2) a bear market rally. A midterm decrease during a bull market (primary trend) is called a market correction; a midterm increase during a bear market (primary trend) is called a bear market rally.
Whether a change of direction is an intermediate correction or rally, or the beginning of a new trend, is generally recognized in hindsight after the change has occured. When new trends begin to appear, market analysts often debate whether they are a correction or a rally (secondary trends) or the beginning of a new bull/bear market (primary trends)because a correction can sometimes foreshadow a new primary bear market. Efficient market theoreticians, on the other hand, consider all trends to be random market movements over varying periods of time.
[edit] Correction
A market correction is sometimes defined as a drop of 10% to 20% over a short period of time. It differs from a bear market mostly in that it has a smaller magnitude and duration. Because of depressed prices and valuations, market corrections (assuming they can be reliably identified as they are occurring) could be good opportunities for value-strategy investors and traders.
[edit] Bear market rally
A bear market rally is sometimes defined as an increase of 10% to 20%. Notable bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading down to the market bottom in 1932, and throughout the late 1960s and early 1970s. The Japanese Nikkei stock average has been typified by a number of bear market rallies since the late 1980s while experiencing an overall long-term downward trend. Bear market rallies typically begin suddenly and are often short-lived because it occurs within a primarily downtrending bear market.
[edit] Secular market trends
A secular market trend is a long-term trend that usually lasts 5 to 25 years (but whose distribution is more or less bell shaped around 17 years, in the stock market), and consists of sequential 'primary' trends. In a secular bull market the 'primary' bear markets have in the past almost always been shorter and less punishing than the 'primary' bull markets were rewarding. Each bear market has rarely (if ever) wiped out the real (inflation adjusted) gains of the previous bull markets, and the succeeding bull markets have usually made up for the real losses of any previous bear markets. This is one of the reasons why a secular market trend may be said to encompass the primary trends within it. In a secular bear market, the 'primary' bull markets are sometimes shorter than the 'primary' bear markets and rarely compensate for the real losses of the 'primary' bear markets occuring during this extended cycle.
For example, in the 1966 - 82 secular bear market in stocks, there was hardly any nominal loss. real terms the loss was devastating. (In the past most 'housing recessions' were of a slow nature, thereby allowing inflation to keep housing prices steady.) Another example of a secular bear market was seen in gold during the period between January 1980 to June 1999. During this period the nominal gold price fell from a high of $850/oz ($30/g) to a low of $253/oz ($9/g),[7] and became part of the Great Commodities Depression. The S&P 500 experienced a secular bull market over a similar time pe