Bull markets

Market trends

In investing, financial markets are commonly believed to have market trends that can be classified as primary trends, secondary trends (short-term), and secular trends (long-term). This belief is generally consistent with the practice of technical analysis and broadly inconsistent with the standard academic view of financial markets, the efficient market hypothesis. Another commonly held academic viewpoint is that market prices follow a random walk model and that any apparent past 'trends' are purely an accumulation of random variations.

However, the assumption that market prices move in trends is one of the major components of technical analysis, and consideration of market trends is common to most Wall Street investors. Market trends are described as sustained movements in market prices over a period of time. The terms bull market and bear market describe upward and downward movements respectively: this can relate either to the market as a whole or to specific sectors and securities (stocks). The expressions "bullish" and "bearish" can also mean optimistic and pessimistic respectively ("bullish on technology stocks," or "bearish on gold", etc).

Primary market trends

A primary trend has broad support throughout the entire market or market sector and lasts for a year or more.

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. 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.

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. A milder, low-level, 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.

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.

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%. 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 absolutely clear when there is a price decline between 15% and 20%.

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 occurred. 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.


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.

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.

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 occurring during this extended cycle.

For example, in the 1966 - 82 secular bear market in stocks, there was hardly any nominal loss. But in 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), and became part of the Great Commodities Depression. The S&P 500 experienced a secular bull market over a similar time period (~1982 - 2000).

Market events

An exaggerated bear market, that tends to be associated with falling investor confidence and panic selling, can lead to a market crash associated with a recession. An exaggerated bull market, on the other hand, fueled by overconfidence and/or speculation can lead to a market bubble — characterized by an extreme inflation of the price/earnings P/E ratios of the stocks in that market.

Cause of market events

Market movements may respond to new information becoming available to the market, but may also be influenced by investors' cognitive biases and emotional biases. Expectations play a large part in financial markets. Often there will be significant price reaction to financial data, information or news. Unexpected news or information that is perceived as positive for the economy or for a particular market sector or company will of course increase stock prices, and vice versa. Some behavioral finance studies (Richard Thaler) also point to the impact of the underreaction-adjustment-overreaction process in the formation of market movements and trends.

Technical analysis

Many investors and analysts use technical analysis to try to identify whether a market or security is likely to increase or decrease in value. They then generate trading strategies to exploit their conclusions and market insights. Some technical analysts believe that the financial markets are cyclical and move in and out of bull and bear market phases on a regular and consistent basis.


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".

The most common etymology points to London bearskin "jobbers" (market makers), 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. 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.

Some analogies that have been used as mnemonic devices:

  • Bull is short for 'bully', in its now mostly obsolete meaning of 'excellent'.
  • It relates to the common use of these animals in blood sport, i.e bear-baiting and bull-baiting.
  • It refers to the way that the animals attack: a bull attacks upwards with its horns, while a bear swipes downwards with its paws.
  • It relates to the speed of the animals: bulls usually charge at very high speed whereas bears normally are lazy and cautious movers.
  • They were originally used in reference to two old merchant banking families, the Barings and the Bulstrodes.
  • Bears hibernate, while bulls do not.
  • Bulls keep their chin up, while bears keep their chin down.
  • Bears' necks point down, while bulls' points upward.
  • The word "bull" plays off the market's returns being "full" whereas "bear" alludes to the market's returns being "bare".
  • Bulls run up stairs and Bears jump out of windows.

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.

Historic examples

  • The Crash of 1929 was an end to the bull market that existed throughout the 1920s.
  • 1973-1974
  • The Black Monday crash of 1987 did not push the markets into a bear market. It was a sharp, dramatic correction within an upward trend.
  • The October 27, 1997 mini-crash is considered a somewhat more minor stock market correction when compared to Black Monday, but, like the 1987 crash, it was a correction during an upward trend.
  • The stock market downturn of 2002.
  • The September 11, 2001 correction.
  • In May 2006, emerging markets including India witnessed a correction. Indices fell as much as 20% before resuming the secular bull run.
  • The stock market downturn(s) of 2008 after the stock market peaked in October of 2007.


See also

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