Understanding Bulls & Bears

Sunday, January 6, 2008 | Labels: | 1 comments |

The most used words of the stock market jargon are 'Bulls & Bears'. These words represent the market trends of a particular stock or stock exchange. In the stock markets, buyers are represented as bulls and sellers as bears. It becomes obvious that a bullish market correspond to a booming economy and a bearish market testifies for a bad economy looming with recession.

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.).

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.

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.

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.

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.
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