A market trend is a putative prevailing course or tendency of a financial market to move in a particular direction over time.[1] These trends are classified as secular trends for long time frames, primary trends for medium time frames, and secondary trends lasting short times.[2] Traders identify market trends using technical analysis, a framework which characterizes market trends as a predictable price response of the market at levels of price support and price resistance, varying over time.
The terms bull market and bear market describe upward and downward market trends, respectively, and can be used to describe either the market as a whole or specific sectors and securities.[3]
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A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of sequential primary trends.
In a secular bull market the prevailing trend is bullish or upward moving. The United States was described as being in a secular bull market from about 1983 to 2000 (or 2007), with brief upsets including the crash of 1987 and the dot-com bust of 2000–2002.
In a secular bear market, the prevailing trend is bearish or downward moving. An example of a secular bear market was seen in gold during the period between January 1980 to June 1999, culminating with the Brown Bottom. During this period the nominal gold price fell from a high of $850/oz ($30/g) to a low of $253/oz ($9/g),[4] and became part of the Great Commodities Depression.
A primary trend has broad support throughout the entire market or market sector and lasts for a year or more.
A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery. It is a win win situation for the investors.
India's Bombay Stock Exchange Index, SENSEX, was in a bull market trend for almost five years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points. Another notable bull market was in the 1990s and most of the 1980s when the U.S. and many other stock markets rose; this time period included the dot-com bubble.
A bear market is a general decline in the stock market over a period of time.[5] It is a transition from high investor optimism to widespread investor fear and pessimism.
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]
A bear market followed the Wall Street Crash of 1929 and erased 89% (from 386 to 40) of market capitalization by July 1932, marking the start of the Great Depression. After regaining nearly 50% of its losses, a longer bear market from 1937 to 1942 occurred in which the market was again cut in half. Another long-term bear market occurred from about 1973 to 1982, encompassing the stagflation of U.S. economy, the 1970s energy crisis, and the high unemployment of the early 1980s. Yet another bear market occurred between March 2000 and October 2002. The most recent example occurred between October 2007 and March 2009. Today's America can be considered in a Bear Market.
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A market top is usually not a dramatic event. The market has simply reached the highest point that it will, for a few years, although of course people don't know that at the time. A decline then follows, usually gradually at first and later with more rapidity. William J. O'Neil and company report that since the 1950's a market top is characterized by three to five distribution days in a major market index occurring within a relatively short period of time. Distribution is a decline in price with higher volume than the preceeding session.
The peak of the dot-com bubble (as measured by the NASDAQ-100) occurred on March 24, 2000. The index closed at 4,704.73 and has not since returned to that level. The Nasdaq peaked at 5,132.50 and the S&P 500 at 1525.20.
A recent peak for the broad U.S. market was October 9, 2007. The S&P 500 index closed at 1,576 and the Nasdaq at 2861.50.
A market bottom is a trend reversal, the end of a market downturn, and precedes the beginning of an upward moving trend (bull market).
It is very difficult to identify a bottom (referred to by investors as "bottom picking") while it is occurring. The upturn following a decline is often short-lived and prices might resume their decline. This would bring a loss for the investor who purchased stock(s) during a misperceived or "false" market bottom.
Baron Rothschild is said to have advised that the best time to buy is when there is "blood in the streets", i.e., when the markets have fallen drastically and investor sentiment is extremely negative.[7]
Some examples of market bottoms, in terms of the closing values of the Dow Jones Industrial Average (DJIA) include:
Secondary trends are short-term changes in price direction within a primary trend. The duration is a few weeks or a few months.
One type of secondary market trend is called a market correction. A correction is a short term price decline of 5% to 20% or so.[11]
Another type of secondary trend is called a bear market rally (or "sucker rally") which consist of an market price increase of 10% to 20%. 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 225 has been typified by a number of bear market rallies since the late 1980s while experiencing an overall long-term downward trend.
Investor sentiment is a contrarian stock market indicator.
By definition, the market balances buyers and sellers, so that there is a balance between positive and negative sentiment. Thus it is impossible for a high proportion of market participants to have negative or positive sentiment. However it is possible to argue that when a high proportion of financial commentators and advisors express a bearish (negative) sentiment, some people consider this as a strong signal that a market bottom may be near. The predictive capability of such a signal (see also market sentiment) is thought to be highest when investor sentiment reaches extreme values.[12] Indicators that measure investor sentiment may include[citation needed]:
Market capitulation refers to the threshold reached after a severe fall in the market, when large numbers of investors can no longer tolerate the financial losses incurred.[13] These investors then capitulate (give up) and sell in panic, or find that their pre-set sell stops have been triggered, thereby automatically liquidating their holdings in a given stock. This may trigger a further decline in the stock's price, if not already anticipated by the market. Margin calls and mutual fund and hedge fund redemptions significantly contribute to capitulations.[citation needed]
The contrarians consider a capitulation a sign of a possible bottom in prices. This is because almost everyone who wanted (or was forced) to sell stock has already done so, leaving the buyers in the market, and they are expected to drive the prices up.
The peak in volume may precede an actual bottom.
The precise origin of the phrases "bull market" and "bear market" are obscure. The Oxford English Dictionary cites an 1891 use of the term "bull market". In French "bulle spéculative" refers to a speculative market bubble. The Online Etymology Dictionary relates the word "bull" to "inflate, swell", and dates its stock market connotation to 1714.[14]
One hypothetical etymology points to London bearskin "jobbers" (market makers),[citation needed] who would sell bearskins before the bears had actually been caught in contradiction of the proverb ne vendez pas la peau de l'ours avant de l’avoir tué ("don't sell the bearskin before you've killed the bear")—an admonition against over-optimism.[citation needed] By the time of the South Sea Bubble of 1721, the bear was also associated with short selling; jobbers would sell bearskins they did not own in anticipation of falling prices, which would enable them to buy them later for an additional profit.
Another plausible origin is from the word "bulla" which means bill, or contract. When a market is rising, holders of contracts for future delivery of a commodity see the value of their contract increase. However in a falling market, the counterparties—the "bearers" of the commodity to be delivered—win because they have locked in a future delivery price that is higher than the current price.[citation needed]
Some analogies that have been used as mnemonic devices:
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.[16]
International sculpture team Mark and Diane Weisbeck were chosen to re-design Wall Street's Bull Market. Their winning sculpture, the "Bull Market Rocket" was chosen as the modern, 21st century symbol of the up-trending Bull Market.
The concept of market trends is inconsistent with the standard academic view of the price movement of the financial markets, the efficient-market hypothesis.[17][18]
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   | What Is a Bear Market? - Fool.com: What Is a Bear Market? [Retiree Portfolios] July 17, 2000 |
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