I was having dinner the other night with my wife and some friends when I started talking to my friends about the stock market. The markets have been crazy lately, and we were talking about market bulls vs. market bears for at least 2 hours. After a few minutes, my friend’s wife asked, “what are bull and bear markets”
It was at this time I realized that many people don’t understand the stock market terms bull and bear. For someone that has been following the markets for 25 years, I couldn’t honestly remember the first time I heard the term bull or bear. However, it is perfectly understandable, so I thought I would write a quick article explaining both the meaning and differences between Bull and Bear Markets.
The short answer is that a bull market is one that is going up, and a bear market occurs when the market is going downward. The terms come from the way the animals fight. A bull thrusts upward, while a bear swipes in downward movements. The descriptions are a market sentiment that often changes in different time periods, stock prices, asset classes, etc. inside the stock market.
However, the reality is that more people than ever are trading online and may not understand what a bull market or bear market is. The purpose of this article is to help people understand what bullish or bearish sentiment in the stock market is.
Bull and Bear Markets Explained In Stock Market Performance
The stock market is affected and reflects traders’ emotions, whether they sell or buy. We call this market sentiment that is can roughly be described as bull and bear markets. Positive news will often bring positive changes to the markets and assets (bull markets), while bad news will cause them to fall (bear markets).
What is a Bear Market? A bear market is defined as a period when a market falls 20% or more from recent highs. Bullish traders will look to buy stocks, call options, or any other financial instrument that will appreciate as prices go up. Bear market traders are looking to take short positions where they will profit if the market or stock goes down from its current price.
What is Bull Market? The short answer is that a bull market is an up-trending stock market. In such a market, the prices of most stocks are significantly higher than their recent historic lows and fluctuate between fairly high highs and low lows. On the other hand, a bearish market is when the prices of most stocks are considerably lower than their recent historical highs and fluctuate between lows highs and high lows.Short-term traders in a bullish market will position themselves to take advantage of both parties by buying or selling shares in anticipation of short-term price fluctuations.
The term “Bull” in the context of finance, economics, and related fields, derives from the way that a bear and bull fight. The bull drives horns up into the air while a bear lashes down with its claws. “
In Bull Markets, investors are optimistic about buying stocks at a low price and selling them later on at a high price. In Bear Markets, investors predict that stock values will move down and sell their stocks to lock in profits before prices decline.
Bearish vs. Bullish Analysts and Investors
Often in the media, analysts will be referred to as bearish or bullish. When an analysis is referred to as bearish on a market, it means that he thinks the market will go down. He thinks the market will go up when an analysis is called bullish.
Investors are generally not categorized as Bullish vs. Bearish, but often big named investors will be called a bull or bear because they often hold a long or short position in a specific market.
The financial markets often have bear and bull markets going on at the same time. This is because some instruments may be inversely related. A good investment strategy uses a diversified portfolio to minimize risks.
What is a Bear Market?
You might be asking, “What is the technical definition of a bear or bull market?” The most common technical definition is that a bear market is usually defined as a 20% decline in stock prices in a given market over an extended period of time (usually months to years).
What is a Bull Market?
Alternatively, a bull market is usually defined as a 20% increase in stock prices over an extended period of time (usually months to years). One thing that is important to understand about these definitions is that one does not necessarily follow the other.
This means that you can have a bull trend but still experience major declines during significant corrections or pullbacks. In fact, many stocks experience even greater declines during periods of bull markets than they will during bear markets.
Bull Market vs. Bear Market
A bull market is one that has a rising market and is generally characterized by favorable economic conditions. A bear market is an economic downturn in which stocks are losing value, and the economy is in decline. These terms denote investors’ views on the market and the resulting economic trends. As mentioned above, a bear market is technically classified as “bear” when the market has fallen 20% or more.
Stock market analysts may disagree if the stock market is in a bear market or bull market because there is room for interpretation and time frames vary. Bear versus bull market is often hotly debated on financial news networks.
Bullish and Bearish Markets
The first bull market took place in the United States from July 1966 to June 1982. During this period, stock prices moved from $35 to a high in March of $75 (roughly doubling) and then fell back to $35 by December 1982 before the next bull market began.
This bull market lasted until August 1999, when the dot-com bubble burst, and shares went from around $97 to a low of $29 by March 2000 (a drop of 83% over five years).
This bear market ended in November 2002 when the Federal Reserve System lowered interest rates below zero which signaled that investors were no longer worried about deflation due to declining oil prices. Since 2002 the market has been in a bull market, which still continues today.
The Dow Jones Industrial Average fell nearly 50% during the Great Depression between 1929 and 1932. The Dow returned to positive territory following the stock crash of 1929 and remained there until late 1937. Thereafter it resumed its slide and did not return to positive territory (over 10 years) until 1949.
This was largely due to the massive number of investors who changed their buy-and-hold strategy into a buy-and-wait strategy until they felt that investing was no longer a risk. The Dow did not surpass its pre-crash high until 1954.
Is it better to buy bullish or bearish?
We advise against trying to buy bullish or bearish. Sometimes you can buy a stock on the dip, but it is very difficult to time the market.
If you were able to time the market, you would be able to buy cheap stocks that are about to surge in price and sell stocks that are about to decline. This may seem like it would be very profitable. However, there is no guarantee you will be able to do so because the market is constantly changing, and prices will always bounce back and forth throughout any given day.
The main reason why we don’t recommend timing the market is that it takes a lot of research time to do so. And the more research time, the better; we believe that less than 5% of investors in a given market can correctly anticipate which way the market will move on any given day.
Does bearish mean sell?
No, bearish does not necessarily mean sell. Bearish means selling at a low price, and bearish means buying shares at a low price. For example, if the stock is $50 and you decide that it has gone too high and want to sell, it would be bearish because you would be selling at a high price. If the stock is $70 and you decide that it has gone too low for your liking and want to buy some more, it would be bullish because there may still be more room to grow if the company releases good news (news that boosts share prices).
Are we in a bull or bear market?
In the past, it was much easier to tell if a bull or bear market was occurring. Most would say we are currently in a bear market, but as I am writing there is a sell-off of tech stocks.
Due to the introduction of futures markets and day trading, and with the emergence of high-frequency trading, it is now more difficult to determine if we are in a bull or bear market.
The markets are very volatile and could change direction fast. A few tweets by a CEO can send a stock soaring or to the bottom. Therefore, we do not recommend trying to time the market because it is very difficult to do.
Traders can think of “long” as another word for “buy” If you’re “going long” it means you’re buying it, then you own it. Generally speaking, this means you are Bullish if you are long. This way, you can sell it for a higher value than you paid for it and reap a profit. If Suzy goes long, she’ll lose $50 if the price drops to $9.50, her long position isn’t profitable. Suzy can now sell her 100 shares of ZYZY stock for $10.40 per share several hours later, collecting $1,040 and making a $40 profit.