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Encyclopedia > Market trends

In investing, financial markets are commonly believed to have market trends[1] 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. Investment is a term with several closely related meanings in finance and economics. ... This article does not cite any references or sources. ... It has been suggested that some of the information in this articles Criticism or Controversy section(s) be merged into other sections to achieve a more neutral presentation. ... In finance, the efficient market hypothesis (EMH) asserts that financial markets are informationally efficient, or that prices on traded assets, e. ...


That market prices do move in trends is one of the major assumptions of technical analysis,[2] and the description of market trends is common to Wall Street,[3] It has been suggested that some of the information in this articles Criticism or Controversy section(s) be merged into other sections to achieve a more neutral presentation. ... Elaborate marble facade of NYSE as seen from the intersection of Broad and Wall Streets For other uses, see Wall Street (disambiguation). ...


Market trends are described as periods when bulls (buyers) consistently outnumber bears (sellers), or vice versa. A bull or bear market describes the trend and sentiment driving it, but can also refer to specific securities and sectors ("bullish on IBM", "bullish on technology stocks," or "bearish on gold", etc.). The intuitive feeling of the investment community regarding the expected movement of the stock market. ...

Contents

Primary market trends

Bull market

The Charging Bull in Bowling Green, New York is a symbol of the bull market.

A bull market tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of further capital gains. The longest and most famous bull market was in the 1990s when the U.S. and many other global financial markets grew at their fastest pace ever.[4] Image File history File linksMetadata Size of this preview: 763 × 600 pixelsFull resolution (1400 × 1100 pixel, file size: 306 KB, MIME type: image/jpeg) The north end of the Bowling Green park in New York City, featuring the Charging Bull, a bronze sculpture by Arturo Di Modica. ... Image File history File linksMetadata Size of this preview: 763 × 600 pixelsFull resolution (1400 × 1100 pixel, file size: 306 KB, MIME type: image/jpeg) The north end of the Bowling Green park in New York City, featuring the Charging Bull, a bronze sculpture by Arturo Di Modica. ... Charging Bull (Feb. ... Bowling Green, shown in a composite photograph taken from the steps of the U.S. Custom House looking north along Broadway. ... This article is about the state. ... In finance, a capital gain is profit that results from the appreciation of a capital asset over its purchase price. ...


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 described as a bull run. Dow Theory attempts to describe the character of these market movements. It has been suggested that Herding instinct be merged into this article or section. ... Dow Theory is a theory on stock price movements that provides a basis for technical analysis. ...


The United States has been described as being in a long-term bull market since about 1983, with brief upsets including the Panic of 1987 and the NASDAQ Crash in 2000. NASDAQ in Times Square, New York City. ...


Bear market

A bear market is described as being accompanied by widespread pessimism. Investors anticipating further losses are motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was 1930 to 1932, marking the start of the Great Depression.[5] A milder, low-level long-term bear market occurred from about 1967 to 1983, encompassing the stagflation economy, energy crises in the 1970s, and high unemployment in the early 1980s. In many parts of economics there is an assumption that a complex system of determinants will tend to lead to a state of equilibrium. ... For other uses, see The Great Depression (disambiguation). ... This article uses excessive clichés and jargon. ...


Prices fluctuate constantly on the open market; a bear market is not a simple decline, but a substantial drop in the prices of a range of issues over a defined period of time. By one common definition, a bear market is marked by a price decline of 20% or more in a key stock market index from a recent peak over a 12-month period. However, no consensual definition of a bear market exists to clearly differentiate a primary market trend from a secondary market trend. A comparison of three major stock indices: the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500. ...


Investors frequently confuse bear markets with corrections. Corrections are much shorter lived, whereas bear markets occur over a longer period with typically a greater magnitude of loss from top to bottom.


Secondary market trends

A secondary trend is a temporary change in price within a primary trend. These usually last a few weeks to a few months. A temporary decrease during a bull market is called a correction; a temporary increase during a bear market is called a bear market rally.


Whether a change is a correction or rally can be determined only with hindsight. When trends begin to appear, market analysts debate whether it is a correction/rally or a new bull/bear market, but it is difficult to tell. A correction sometimes foreshadows a bear market.


Correction

A market correction is sometimes defined as a drop of 10% to 20% (25% on intraday trading) 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 valuation, market corrections can be a good opportunity for value-strategy investors. If one buys stocks when everyone else is selling, the prices fall and therefore the P/E ratio goes down. Also, one is able to purchase undervalued stocks with a highly probable upside potential. The P/E ratio (price-to-earnings ratio) of a stock (also called its earnings multiple, or simply multiple, P/E, or PE) is used to measure how cheap or expensive its share price is. ...


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 downward trend. Linear graph of the DJIA from 1901 until today Logarithmic graph of the DJIA from 1901 until today The Dow Jones Industrial Average (NYSE: DJI, also called the DJIA, Dow 30, or informally the Dow Jones or The Dow) is one of several stock market indices created by nineteenth-century... Year 1929 (MCMXXIX) was a common year starting on Tuesday (link will display the full calendar) of the Gregorian calendar. ... Year 1932 (MCMXXXII) was a leap year starting on Friday (the link will display full 1932 calendar) of the Gregorian calendar. ... The 1960s decade refers to the years from 1960 to 1969, inclusive. ... The 1970s decade refers to the years from 1970 to 1979, also called The Seventies. ... Nikkei 225 (日経平均株価, 日経225) is a stock market index for the Tokyo Stock Exchange (TSE). ... The 1980s refers to the years from 1980 to 1989. ...


Secular market trends

A secular market trend is a long-term trend that usually lasts 5 to 25 years, and consists of sequential primary trends. In a secular bull market the bear markets are smaller than the bull markets. Typically, each bear market does not wipe out the gains of the previous bull market, and the next bull market makes up the losses of the bear market. In a secular bear market, the bull markets are smaller than the bear markets and do not wipe out the losses of the previous bear market.


An example of a secular bear market was seen in gold over the period between January 1980 to June 1999, over which the nominal gold price fell from a high of $850/oz to a low of $253/oz,[6] which formed part of the Great Commodities Depression. The S&P 500 experienced a secular bull market over a similar time period.[7] GOLD refers to one of the following: GOLD (IEEE) is an IEEE program designed to garner more student members at the university level (Graduates of the Last Decade). ... The Great Commodities Depression is the steep, general recession in commodity prices between 1980 and 2000, both in real and nominal terms. ... The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American. ...


Market events

An exaggerated bull market fueled by overconfidence and/or speculation can lead to a stock market bubble. At the other extreme, an exaggerated bear market, that tends to be associated with falling investor confidence and panic selling, can lead to a stock market crash and a recession. Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. ... A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation. ... A stock market bubble is a type of economic bubble taking place in stock markets when price of stocks rise and become overvalued by any measure of stock valuation. ... Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. ... In macroeconomics, the definition of recession is a decline in any countrys Gross Domestic Product (GDP), or negative real economic growth, for two or more successive quarters of a year. ...


Causes

Both bull and bear markets may be fueled by sound economic considerations and/or by speculation and/or investors' cognitive biases and emotional biases. This article or section does not cite its references or sources. ... An emotional bias is a distortion in cognition and decision making due to emotional factors. ...


Expectations play a large part in financial markets and in the changes from bull to bear environments. More precisely, attention should be paid to reactions to information, chiefly positive surprises and negative surprises. The tendency is for positive surprises to fuel a bull market (when the news continually tends to exceed investor's expectations) and negative surprises tend to feed a bear market (with expectations disappointed). Also, some behavioral finance studies (Richard Thaler) show the role of the underreaction-adjustment-overreaction process in the formation of market trends. Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ... Richard H. Thaler (b. ...


Technical analysis

Main article: Technical analysis

Many investors and analysts use technical analysis to try to identify whether a market or security is in a bull or bear phase, and to generate trading strategies to exploit the trend. Technical analysts believe that financial markets are cyclical and move in and out of bull and bear market phases regularly. It has been suggested that some of the information in this articles Criticism or Controversy section(s) be merged into other sections to achieve a more neutral presentation. ... It has been suggested that some of the information in this articles Criticism or Controversy section(s) be merged into other sections to achieve a more neutral presentation. ...


Etymology

The precise origin of the phrases "bull market" and "bear market" is obscure. The Oxford English Dictionary cites an 1891 use of the term "bull market".


The most common etymology points to London bearskin "jobbers" (brokers),[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. Not to be confused with Entomology, the scientific study of insects. ... This article is about the capital of England and the United Kingdom. ... For other uses, see Bear (disambiguation). ... Look up proverb in Wiktionary, the free dictionary. ... Hogarthian image of the South Sea Bubble by Edward Matthew Ward, Tate Gallery More well known than The South Sea Company is perhaps the South Sea Bubble (1711 - September 1720) which is the name given to the economic bubble that occurred through overheated speculation in the company shares during 1720. ... Year 1721 (MDCCXXI) was a common year starting on Wednesday (link will display the full calendar) of the Gregorian calendar (or a common year starting on Sunday of the 11-day slower Julian calendar). ... It has been suggested that Short (finance) be merged into this article or section. ...


Some analogies that have been drawn, but are likely false etymologies: A false etymology is an assumed or postulated etymology which is incorrect from the perspective of modern scholarly work in historical linguistics. ...

  • 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 with its horns from bottom up; a bear attacks with its paw from above, downward.
  • 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.
  • Bears keep their chin up, while Bulls keep their chin down.
  • Bear neck points down while Bull's points upwards.
  • The word "bull" plays off the market's return's being "full" whereas "bear" alludes to the market's returns being "bare".

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. In a falling market, the counterparties--the "bearers" of the commmodity to be delivered, win because they have locked in a price higher than the present for future delivery. For other uses, see Blood sport (disambiguation). ... Bear_baiting in the 18th century, engraving, 1796 Bear_baiting is a blood sport that was a popular entertainment from at least the 11th century in which a bear is secured to a post and then attacked by a number of dogs. ... Bull-baiting is a blood sport involving the baiting of bulls. ... This article refers to the process of hibernation in biology. ...


Historic examples

  • The Crash of 1929 was an end to the bull market that existed throughout the 1920's.
  • 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.
  • In May 2006, emerging markets including India witnessed a correction. Indices fell as much as 20% before resuming the secular Bull Run.

The Great Depression was a global economic slump that began in 1929 and bottomed in 1933. ... DJIA (19 July 1987 through 19 January 1988). ... Year 1987 (MCMLXXXVII) was a common year starting on Thursday (link displays 1987 Gregorian calendar). ... The October 27, 1997 mini-crash is the name of a global stock market crash that was caused by an economic crisis in Asia (a. ... The stock market downturn of 2002 (some say stock market crash or the Internet bubble bursting) is the sharp drop in stock prices during 2002 in stock exchanges across the United States, Canada, Asia, and Europe. ...

Notes

  1. ^ Investorswords.com, retrieved 30 May 2007.
  2. ^ John J. Murphy, Technical Analysis of the Financial Markets (New York Institute of Finance, 1999), p. 2.
  3. ^ New York Stock Exchange (NYSE Info Tools), retrieved 30 May 2006.
  4. ^ http://finance.yahoo.com/charts#chart2:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
  5. ^ http://finance.yahoo.com/charts#chart2:symbol=^dji;range=my;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
  6. ^ http://www.kitco.com/LFgif/au968-999.gif
  7. ^ http://finance.yahoo.com/q/bc?s=%5EGSPC&t=my&l=off&z=l&q=l&c=

See also

// [edit] Introduction [edit] Definition If we were to take snapshots of an economy at different points in time, no two photos would look alike. ... In finance, financial markets facilitate: The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); and International trade (in the currency markets). ... Topics in finance include: // Finance an overview Arbitrage Capital (economics) Capital asset pricing model Cash flow Cash flow matching Debt Default Consumer debt Debt consolidation Debt settlement Credit counseling Bankruptcy Debt diet Debt-snowball method Discounted cash flow Financial capital Funding Financial modeling Entrepreneur Entrepreneurship Fixed income analysis Gap financing... A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... It has been suggested that some of the information in this articles Criticism or Controversy section(s) be merged into other sections to achieve a more neutral presentation. ... Trend following is an investment strategy that takes advantage of long-term moves that play out in various markets. ... A Keynesian beauty contest is a concept developed by John Maynard Keynes and introduced in his masterwork, General Theory of Employment Interest and Money (1936), to explain price fluctuations in equity markets. ...

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