Bull and Bear Market
The term bull market or bull market [ os ] ( French for rise , increase ) on the stock exchange stands for continuously rising prices, while bear market or bear market [ bɛs ] ( French for decline , decrease ) stands for continuously falling prices. A “stock market cycle” includes a bull market and a bear market.
Characteristics of the markets
Bulls and bears
The stock exchange distinguishes between bull and bear markets. "Bulls" and "bears" symbolize investors who shape the market with their different expectations:
- The bull is optimistic. He buys in the hope of recovery. A dominance of bulls in the market leads to rising prices (bull market). A long-term bull market is something investors are hoping for.
- The bear is pessimistic and is betting on an expected price decline. He makes his money through skepticism and disbelief, speculating on a bear market or buying put options. If the expectation of the bears prevails, this leads to falling prices (bear market).
The behavior of the animals serves as a memory aid to distinguish between “bulls” and “bears”: while the bull pushes its horns upwards, the bear hits its paw from top to bottom. Another donkey bridge is the phrase “The bear baisst”.
Influences on market dynamics
Both the bull market and the bear market can be caused by fundamental economic upheavals, in particular business cycles , but also by speculation . In the financial market, investor expectations play a key role. This also applies to extreme price developments. A bull market can lead to a speculative bubble through exaggerated earnings expectations . On the other hand, if investors have overly pessimistic expectations, a bear market can degenerate into a stock market crash .
The bull market and the bear market are opposite to each other. Together they cause prices to rise and fall. Especially the transitions between bull and bear are difficult to interpret. Particular attention should be paid to positive or negative surprises. A series of positive surprises often characterizes a bull market, a series of negative surprises a bear market. By means of chart analysis , “technical analysts” try to predict the trend of the market and especially turning points between bull and bear markets. In contrast, there is the market efficiency hypothesis , which postulates the impossibility of this undertaking.
Market phases
Both bull and bear markets are related to different time periods. If such a market lasts for many years, it is referred to as a "secular market".
Bull market
A bull market (also French bull market ) occurs when the prices of securities rise over a longer period of time. This can be all securities of a market (e.g. a country or a region) or just the values of a specific industry. The bull market goes hand in hand with increasing investor confidence and expectations of future profits . On the stock exchange , “bull market” - deviating from the correct French pronunciation - is predominantly pronounced “Hosse”.
The stock exchange prices rise above all in phases of the macroeconomic upswing, which leads to the boom . When there is a strong upswing in the economy or an industry , one also speaks of a “boom”. On the other hand, there is the stock market adage "The bull market feeds the bull market". This means that rising prices develop a momentum of their own. Investors who initially stay away from buying stocks because they do not trust the upward trend at the beginning, decide after a certain time to get started. That can keep the bull market going for a long time - regardless of other influences.
Bear market
Conversely, it is called a bear market (also french bearish ) when prices fall for a longer period. The bear market is accompanied by a decline in investor confidence and expectations of future losses. On the stock exchange , the bear is the symbol for a falling (negative) price development, the stock exchange is then "bearish". Investors who are prepared for a negative future price development and act in this expectation are accordingly referred to as bears.
A slow but long-lasting downturn is also jokingly referred to as a "salami crash" or a "crash on installments" (based on the salami tactics ).
A bear market rally is a strong, rapid intermediate recovery in the context of an overarching downward movement (bear market). Whether the strong price recovery is a bear market rally or, for example, the beginning of a long-term upward movement, can only be assessed afterwards.
Sideways market
In contrast to the markets mentioned above, prices do not move significantly in one direction in a sideways market . It is characterized by price fluctuations that do not leave a certain range. Investors here have a neutral stance towards market developments, they do not expect large future profits or losses.
Short term market movements
- A rally (spelling also rally ), also called runup , is a short, sharp rise in stock exchange prices . A rally can also take place within a bear market (bear market rally, see above ).
- A stock market crash or "crash" is a phase in which prices suddenly, quickly and sharply fall.
- A “correction” is a time-limited countermovement in prices, for example a short-term fall in prices within a higher-level bull market.
Bull trap and bear trap
The term bull trap describes a price development that leads investors to believe that prices will continue to rise. You buy securities and after a brief increase, prices then fall again.
The term bear trap has the opposite meaning , for briefly falling and then rising prices.
If the investors recognize that they have fallen into this “trap”, the movement may intensify. U. even if they now also change their minds and sell or buy their papers ( positive feedback ).
See also
literature
- Jack D. Schwager: Brother-in-law on technical analysis. Introduction, application, consolidation . FinanzBook Verlag , Munich 2003, ISBN 3-89879-034-7 , p. 174–178 (section “Bull and Bear Traps”).
Individual evidence
- ↑ Boom in the stock exchange lexicon at Aktien-Prognose.com .
- ↑ Jessica Schwarzer: Stock market wisdom: The bull market feeds the bull market. In: Handelsblatt.com. May 14, 2014, accessed August 2, 2020 .
- ↑ Bear in the dictionary at boersennews.de
- ^ Bärenmarkt-Rally boerse.ard.de
- ↑ See Duden online: rally and rally (meaning 2).