A market trend is a putative 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 In finance, technical analysis is a security analysis discipline for forecasting the future direction of prices through the study of past market data, primarily price and volume, 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]

Contents

Secular market trends

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 In finance, Black Monday refers to Monday, October 19, 1987, when stock markets around the world crashed, shedding a huge value in a very short time. The crash began in Hong Kong, spread west through international time zones to Europe, hitting the United States after other markets had already declined by a significant margin. The Dow Jones and the dot-com bust The "dot-com bubble" was a speculative bubble covering roughly 1995–2000 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields. While the latter part was a boom and 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 Gold is a chemical element with the symbol Au (from Latin: aurum, "shining dawn", hence adjective, aureate) and an atomic number of 79. It has been a highly sought-after precious metal for coinage, jewelry, and other arts since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, in veins and in alluvial during the period between January 1980 to June 1999, culminating with the Brown Bottom The Brown Bottom is a term used to describe the period between 1999 and 2002, when gold prices were at their lowest in 20 years following an extended bear market. 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.

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 is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor. Conversely, a capital loss arises if the proceeds from the sale of a). 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.

Examples

India's Bombay Stock Exchange The Bombay Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly called Bombay Stock Exchange, or BSE) is the oldest stock exchange in Asia and has the third largest number of listed companies in the world, with 4700 listed as of August 2007. It is located at Dalal Street, Mumbai, India. On 31 December 2007, the equity market Index, SENSEX BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Sensex is regarded as the pulse of the domestic stock markets in India. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies, 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 The "dot-com bubble" was a speculative bubble covering roughly 1995–2000 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields. While the latter part was a boom and.

Bear market

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 Vanguard is a United States investment management company that manages approximately $1 trillion in assets, based in Malvern, Pennsylvania. It offers mutual funds and other financial products and services to individual and institutional investors in the United States and abroad. Founder and former chairman John C. Bogle is credited with the, "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]

Examples

A bear market followed the Wall Street Crash of 1929 The Wall Street Crash of 1929 , also known as the Great Crash, and the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States, taking into consideration the full extent and duration of its fallout. The crash began a 10-year economic slump that affected all the Western industrialized countries and erased 89% (from 386 to 40) of the Dow Jones Industrial Average The Dow Jones Industrial Average, also referred to as the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. The average is named after Dow and one of his business associates, statistician Edward Jones. It's market capitalization by July 1932, marking the start of the Great Depression The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century, and is used. 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 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.

Market top

A market top (or market high) is usually not a dramatic event. The market has simply reached the highest point that it will, for some time (usually a few years). It is, by definition, retroactively defined as market participants are not aware of it as it happens. A decline then follows, usually gradually at first and later with more rapidity. William J. O'Neil and company report that since the 1950s 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 preceding session.

Examples

The peak of the dot-com bubble The "dot-com bubble" was a speculative bubble covering roughly 1995–2000 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52) during which stock markets in industrialized nations saw their equity value rise rapidly from growth in the more recent Internet sector and related fields. While the latter part was a boom and (as measured by the NASDAQ-100 The NASDAQ-100 is a stock market index of 100 of the largest non-financial companies listed on the NASDAQ. It is a modified market value-weighted index. The companies' weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components. It does not contain financial companies, and) 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 The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market companies; the NYSE Euronext and the index closed at 1,576 and the Nasdaq at 2861.50.

Market bottom

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 Baron Rothschild, of Tring in the County of Hertford, is a title in the Peerage of the United Kingdom. It was created in 1885 for Sir Nathan Rothschild, 2nd Baronet, a member of the Rothschild banking family. He was the first person of the Jewish faith to be raised to the peerage 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]

Examples

Some examples of market bottoms, in terms of the closing values of the Dow Jones Industrial Average (DJIA The Dow Jones Industrial Average, also referred to as the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. The average is named after Dow and one of his business associates, statistician Edward Jones. It) include:

Secondary market trends

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 A rally is a period of sustained increases in the prices of stocks, bonds or indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will generally follow a period of flat or declining prices (or "sucker's rally") which consist of an market price increase of 10% to 20%. Bear market rallies occurred in the Dow Jones The Dow Jones Industrial Average, also referred to as the Industrial Average, the Dow Jones, the Dow 30, or simply the Dow, is one of several stock market indices created by Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. The average is named after Dow and one of his business associates, statistician Edward Jones. It 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 Japan is an island state in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south. The characters that make up Japan's name mean "sun-origin", which is why Japan is Nikkei 225 Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). It has been calculated daily by the Nihon Keizai Shimbun (Nikkei) newspaper since 1950. It is a price-weighted average (the unit is yen), and the components are reviewed once a year. Currently, the Nikkei is the most widely quoted average of Japanese equities, similar to the has been typified by a number of bear market rallies since the late 1980s while experiencing an overall long-term downward trend.

Investor sentiment

Investor sentiment is a contrarian A contrarian is a person with a preference for taking a position opposed to that of the majority view prevalent in the group of which they are a part. A contrarian style of journalism, for instance Slate magazine, has been popular, but has also been the subject of severe criticism. Contrarian styles of argument have historically been associated 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 Market sentiment is the general prevailing attitude or consensus of the investment community as to the anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including price history, economic reports, seasonal factors, and national and world events) is thought to be highest when investor sentiment reaches extreme values.[12] Indicators that measure investor sentiment may include:[citation needed]

Market capitulation

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 An order in a market such as a stock market, bond market, commodity market or financial derivative market is an instruction from a customer to a broker to buy on the exchange. These instructions can be simple or complicated. There are some standard instructions for such orders 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 In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of his counterparty . This risk can arise if the holder has done any of the following: 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.

Etymology

This section does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be and removed. (October 2008)

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 Etymology is the study of the history of words, where they are from, and how their form and meaning have changed over time points to London London is a leading global city being the world's largest financial centre alongside New York City, and has the largest city GDP in Europe. Central London is home to the headquarters of most of the UK's top 100 listed companies and more than 100 of Europe's 500 largest. London's influence in politics, finance, education, entertainment, media, bearskin Bears are mammals of the family Ursidae. Bears are classified as caniforms, or doglike carnivorans, with the pinnipeds being their closest living relatives. Although there are only eight living species of bear, they are widespread, appearing in a wide variety of habitats throughout the Northern Hemisphere and partially in the Southern Hemisphere "jobbers" (market makers Most foreign exchange trading firms are market makers and so are many banks, although not in all currency markets. In foreign exchange trading, where most deals are conducted over-the-counter and are, therefore, completely virtual, the market maker sells to and buys from its clients and is compensated by means of price differentials and for the),[citation needed] who would sell bearskins before the bears had actually been caught in contradiction of the proverb A proverb, , is a simple and concrete saying popularly known and repeated, which expresses a truth, based on common sense or the practical experience of humanity. They are often metaphorical. A proverb that describes a basic rule of conduct may also be known as a maxim. If a proverb is distinguished by particularly good phrasing, it may be known 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 The South Sea Company was a British joint stock company that traded in South America during the 18th century. Founded in 1711, the company was granted a monopoly to trade in Spain's South American colonies as part of a treaty during the War of Spanish Succession. In return, the company assumed the national debt England had incurred during the war of 1721, the bear was also associated with short selling In finance, short selling is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as; 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 swindle. 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 A mnemonic device is a mind memory and/or learning aid. Commonly, mnemonics are verbal—such as a very short poem or a special word used to help a person remember something—but may be visual, kinesthetic or auditory. Mnemonics rely on associations between easy-to-remember constructs which can be related back to the data that is to be remembered devices:

In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as a herd Herd behavior describes how individuals in a group can act together without planned direction. The term pertains to the behavior of animals in herds, flocks, and schools, and to human conduct during activities such as stock market bubbles and crashes, street demonstrations, sporting events, religious gatherings, episodes of mob violence and even. 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 Dow Theory on stock price movements is a form of technical analysis that includes some aspects of sector rotation. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow , journalist, founder and first editor of the Wall Street Journal and co-founder of Dow Jones and Company. Following Dow's death, William Peter 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.

Criticism

The concept of market trends is inconsistent with the standard academic view of the price movement of the financial markets, the efficient-market hypothesis In finance, the efficient-market hypothesis asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information publicly available at the time the investment is made.[17][18]

See also

References

  1. ^ [Start Market Course, George Fontanills, Tom Gentile, John Wiley and Sons Inc. 2001, p91http://books.google.com/books?id=gtrLvlojNzIC&pg=PA91&dq=stock+market+trends#v=onepage&q=stock%20market%20trends&f=false]
  2. ^ [Technical Analysis of Stock Trends, R.Edwards, J. McGee, WHC Bessetti, CRC Press, 2007, p17 http://books.google.com/books?id=wklriRw9a1oC&pg=PA17&dq=stock+market+trends#v=onepage&q=stock%20market%20trends&f=false]
  3. ^ [Technical Analysis of Stock Trends, R.Edwards, J. McGee, WHC Bessetti, CRC Press, 2007, p18 http://books.google.com/books?id=wklriRw9a1oC&pg=PA17&dq=stock+market+trends#v=onepage&q=stock%20market%20trends&f=false]
  4. ^ Chart of gold 1968–99
  5. ^ O'Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in Action. Pearson Prentice Hall. p. 290. ISBN The International Standard Book Number is a unique numeric commercial book identifier based upon the 9-digit Standard Book Numbering (SBN) code created by Gordon Foster, now Emeritus Professor of Statistics at Trinity College, Dublin, for the booksellers and stationers W.H. Smith and others in 1966 0-13-063085-3.
  6. ^ "Staying calm during a bear market". Vanguard Group.
  7. ^ http://www.fool.com/investing/small-cap/2007/05/02/buy-when-theres-blood-in-the-streets.aspx Buy When There's Blood in the Streets
  8. ^ http://stockcharts.com/h-sc/ui?s=$INDU&p=D&st=1987-08-01&en=1987-12-31&id=p95907824619 stockcharts.com chart
  9. ^ http://stockcharts.com/h-sc/ui?s=$INDU&p=D&st=2000-01-01&en=2002-12-31&id=p94927308656 stockcharts.com chart
  10. ^ http://stockcharts.com/h-sc/ui?s=$INDU&p=D&st=2007-06-01&en=2009-05-17&id=p70946023540
  11. ^ Technical Analysis of Stock Trends, Robert D. Edwards and John Magee p. 479
  12. ^ Trying to Plumb a Bottom, By MARK HULBERT, http://online.barrons.com/article/SB122652105098621685.html
  13. ^ http://online.wsj.com/article/SB121685817512279283.html?mod=rss_whats_news_us_business Ellison's New Position: Cash Hoard, by Diya Gullapalli, "I don't want to lose any more ..."
  14. ^ Harper, Douglas. "bull". Online Etymology Dictionary The Online Etymology Dictionary is an online dictionary that describes the origins of English-language words. The abbreviation, OED, coincides with the frequently used acronym for the Oxford English Dictionary. http://www.etymonline.com/index.php?term=bull.
  15. ^ "The Speed Of Grizzly Bears" William E. Kearns, Assistant Park Naturalist
  16. ^ Efficient Markets or Herd Mentality? The Future of Economic Forecasting on news.morningstar.com
  17. ^ http://www.investopedia.com/terms/e/efficientmarkethypothesis.asp
  18. ^ [Technical Analysis of Stock Trends, R.Edwards, J. McGee, WHC Bessetti, CRC Press, 2007, p 17 http://books.google.com/books?id=wklriRw9a1oC&pg=PA17&dq=stock+market+trends#v=onepage&q=stock%20market%20trends&f=false]

External links

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Fri, 25 Jun 2010 18:47:21 GM

A . bear market. is a period of decline in multiple broad market indexes such as the Dow Jones Industrial Average (DJIA) and the Standard & Poor's 500 Index (S&P 500) over several months-at least a two-month period. ...

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