Bull market refers to a market that is on the rise, it has sustained increase in market share prices.In such times, participants have faith that the uptrend will continue in the long term.Typically,country's economy is strong and employment levels are high. Bear market is one that is in decline,share prices are continuously dropping,resulting in a downward trend that participants believe will continue in the long run,having a spiraling effect. During a bear market,the economy typically slows down and unemployment may rise as companies begin laying off workers.
Where did this terms come from?
Bear and Bull markets are named after the way in which each animal attacks its victims. It is characteristic of the Bull to drive its horns UPWARDS into the air,therefore upward moving markets are termed Bull Markets. Bear on the other hand,swipes its paws DOWNWARDS upon its unfortunate prey,therefore downward moving markets are termed Bear Markets.
Supply and Demand - In a bull market, we see strong demand and weak supply for shares. Many participants are willing to buy shares while few are willing to sell. As a result, share prices usually rise as participants compete to obtain available equity. In a bear market, the opposite is true as more participants are looking to sell than buy. Demand is significantly lower than supply, as a result, share prices drop.
Psychology - Stock market performance and participants psychology are mutually dependent. In a bull market, almost everyone is interested in the market, willingly participating in hopes of obtaining a profit. During a bear market, on the other hand, market sentiment is negative as participants are beginning to move their money out of equities and waiting in fixed-income assets until there is a positive move. Decline in stock market prices shakes investor confidence, which causes investors to keep their money out of the market,which has spiralling effect,causing the stock markets to decline further.
Economy - Since the businesses whose stocks are trading on the exchanges are the participants of economy, the stock market and the economy are strongly connected. Bear market is usually associated with a weak economy as most businesses are unable to record huge profits because consumers are not spending nearly enough. This decline in profits, of course, directly affects the way the market values stocks. In a bull market, the reverse occurs as people have more money to spend and are willing to spend it, which, in turn, drives and strengthens the economy.
Whether Bull or Bear Market ?
Whether a change is a correction or rally can be determined only with hindsight. When trends begin to appear, market analysts debate whether it is a correction/rally or a new bull/bear market, but it is difficult to tell. A correction sometimes foreshadows a bear market. The key determinant of whether the market is bull or bear is the long-term trend. Long-term trend usually lasts 5 to 25 years. A secondary trend is a temporary change in price within a long-term trend. These usually last a few weeks to a few months. A temporary decrease during a bull market is called a correction; a temporary increase during a bear market is called a bear market rally. Expectations play a large part in financial markets and in the changes from bull to bear environments. More precisely, attention should be paid to reactions to information, chiefly positive surprises and negative surprises. The tendency is for positive surprises to fuel a bull market, and negative surprises tend to feed a bear market.
There is no sure way to predict market trends, but Technical Analysis does help. Technical analysts believe that financial markets are cyclical and move in and out of bull and bear market phases regularly.