Secular market trend
A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets.
In a secular bull market the prevailing trend is “bullish” or upward-moving. The United States stock market was described as being in a secular bull market from about 1983 to 2000 (or 2007), with brief upsets including the dot-com bust 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 during the period between January 1980 to June 1999, culminating with the Brown Bottom. 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.
Primary market trend
A primary trend has broad support throughout the entire market (most sectors) and lasts for a year or more.
A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.
India’s dot-com bubble in 2000-01)
 It is a transition from high investor optimism to widespread investor fear and pessimism. 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.”
A bear market followed the global financial crisis.
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 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.
The peak of the NASDAQ-100) 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 index closed at 1,576 and the Nasdaq at 2861.50.
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 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.
Some examples of market bottoms, in terms of the closing values of the Dow Jones Industrial Average (DJIA) include:
- The Dow Jones Industrial Average hit a bottom at 1738.74 on 19 October 1987, as a result of the decline from 2722.41 on 25 August 1987. This day was called Black Monday (chart).
- A bottom of 7286.27 was reached on the DJIA on 9 October 2002 as a result of the decline from 11722.98 on 14 January 2000. This included an intermediate bottom of 8235.81 on 21 September 2001 (a 14% change from 10 September) which led to an intermediate top of 10635.25 on 19 March 2002 (chart). The “tech-heavy” Nasdaq fell a more precipitous 79% from its 5132 peak (10 March 2000) to its 1108 bottom (10 October 2002).
- A bottom of 6,440.08 (DJIA) on 9 March 2009 was reached after a decline associated with the subprime mortgage crisis starting at 14164.41 on 9 October 2007 (chart).
Secondary market trend
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. A correction is a downward movement that is not large enough to be a bear market (ex post).
Another type of secondary trend is called a bear Nikkei 225 has been typified by a number of bear market rallies since the late 1980s while experiencing an overall long-term downward trend.
Investor sentiment is a stock market indicator.
By definition, the market balances buyers and sellers, so it’s impossible to literally have ‘more buyers than sellers’ or vice versa, although that is a common expression. The market comprises investors and traders. The investors may own a stock for many years; traders put on a position for several weeks down to seconds.
Generally, the investors follow a buy-low, sell-high strategy. Traders attempt to “fade” the investors’ actions (buy when they are selling, sell when they are buying). A surge in demand from investors lifts the traders’ asks, while a surge in supply hits the traders’ bids.
When a high proportion of investors express a bearish (negative) sentiment, some analysts consider it to be a strong signal that a market bottom may be near. The predictive capability of such a signal (see also market sentiment) is thought to be highest when investor sentiment reaches extreme values. Indicators that measure investor sentiment may include:
- Investor Intelligence Sentiment Index: If the Bull-Bear spread (% of Bulls – % of Bears) is close to a historic low, it may signal a bottom. Typically, the number of bears surveyed would exceed the number of bulls. However, if the number of bulls is at an extreme high and the number of bears is at an extreme low, historically, a market top may have occurred or is close to occurring. This contrarian measure is more reliable for its coincidental timing at market lows than tops.
- American Association of Individual Investors (AAII) sentiment indicator: Many feel that the majority of the decline has already occurred once this indicator gives a reading of minus 15% or below.
- Other sentiment indicators include the Nova-Ursa ratio, the Short Interest/Total Market Float, and the Put/Call ratio.
Changes with consumer behavior
Market trends are fluctuated on the demographics and technology. In a macro economical view, the current state of consumer trust in spending will vary the circulation of currency. In a micro economical view, demographics within a market will change the advancement of businesses and companies. With the introduction of the internet, consumers have access to different vendors as well as substitute products and services changing the direction of which a market will go.
Despite that, it is believed that market trends follow one direction over a matter of time, there are many different factors that can change this idea. Technology s-curves as is explained in the book The Innovator’s Dilemma. It states that technology will start slow then increase in users once better understood, eventually leveling off once another technology replaces it. This proves that change in the market is actually consistent.
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.
The fighting styles of both animals may have a major impact on the names. When a bull fights it swipes its horns up; when a bear fights it swipes down on its opponents with its paws.
One hypothetical 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.
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.
Some analogies that have been used as mnemonic devices:
- Bull is short for ‘bully’, in its now somewhat dated meaning of ‘excellent’.
- It relates to the speed of the animals: bulls usually charge at very high speed whereas bears normally are thought of as lazy and cautious movers—a misconception because a bear, under the right conditions, can outrun a horse.
- They were originally used in reference to two old merchant banking families, the Barings and the Bulstrodes.
- The word “bull” plays off the market’s returns being “full” whereas “bear” alludes to the market’s returns being “bare”.
- “Bull” symbolizes charging ahead with excessive confidence whereas “bear” symbolizes preparing for winter and hibernation in doubt.
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.
- Black Monday
- Bull-bear line
- Business cycle
- Don’t fight the tape
- October 27, 1997 mini-crash
- September 11, 2001
- Stock market downturn of 2002
- Trend following
- Economic expansion
- Market sentiment
- [Start Market Course, George Fontanills, Tommy 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]
- Preis, Tobias; Stanley, H. Eugene (2011). “Bubble trouble: Can a Law Describe Bubbles and Crashes in Financial Markets?”. Physics World 24: 29–32.
- Chart of gold 1968–99
- “Staying calm during a bear market“. Vanguard Group.
- 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
- http://stockcharts.com/h-sc/ui?s=$INDU&p=D&st=1987-08-01&en=1987-12-31&id=p95907824619 stockcharts.com chart
- http://stockcharts.com/h-sc/ui?s=$INDU&p=D&st=2000-01-01&en=2002-12-31&id=p94927308656 stockcharts.com chart
- Technical Analysis of Stock Trends, Robert D. Edwards and John Magee p. 479
- Bad Timing Eats Away at Investor Returns
- Trying to Plumb a Bottom, By MARK HULBERT, http://online.barrons.com/article/SB122652105098621685.html
- Harper, Douglas. “bull”. Online Etymology Dictionary. http://www.etymonline.com/index.php?term=bull.
- Bull Market
- “The Speed Of Grizzly Bears” William E. Kearns, Assistant Park Naturalist