Bulls, Bears and Stags
Let’s catch up with ‘Bulls’ and ‘bears’. The two most
commonly used terms in stock markets.
A common story is that the terms ‘Bull market’ and
‘Bear market’ are derived from the way those animals attack. Bulls are supposed
to be aggressive and attacking while bears would wait for the prey to come
down.
Another story is that long back, bear trappers would
first trade in the market and fix a price for bear skins, which they actually
don’t own. Once the price is fixed, they would go hunting for bear skins. So
eventually even if the prices go down, they will still be able to sell if for a
high price. This term eventually was used to describe short sellers and
speculators who sell what they do not own and buy it when the price comes down
and makes money in the process.
However, it was Thomas Mortimer, in his book called
‘Every Man His Own Broker’ (1775) who first officially used the terms Bulls and
bears to describe investors according to their behavior.
BULL MARKETS
When can you say it’s a bull market? When the prices
of stocks moves up rapidly cracking previous highs, you may assume that it’s a
bull market. If there are many bullish days in a row you can consider that as a
‘bull market run’. Technically a bull market is a rise in value of the market
by at least 20%.
BEAR MARKETS
A bear market is the opposite of a bull market. When
the prices of stocks moves crashes rapidly cracking previous lows, you may
assume that it’s a bear market. Generally markets must fall by more than 20% to
confirm that it’ a bear market.
STAGS
This is another category of market participant. The
stags are not interested in a bull run or a bear run. Their aim is to buy and
sell the shares in very short intervals and make a profit from the fluctuation.
It’s a daily tussle for stags in the stock market.
MARKET TIMING
The basic idea behind stock market investment is
simple- Buy low, sell high and make money. So to make money, you buy stocks in
a bear market when stock prices are low and sell stocks in a bull market when
stock prices are high.
However, knowing the exact time when a bear market
would start or when a bull market run would come is not possible. Just when you
thought the markets would go up, it may surprise you by trading low. Your
strategy should be to pick up shares in the bear market and sell it when
there’s a bull market run.
HERE’S THE CRUX..
- Technically
a bull market is a rise in value of the market by at least 20%. Anything
less than 20% would be considered as a minor rally.
- A
market launches into a bull phase when sentiment turns buoyant, which is
usually because of a series of positive developments that beat
expectations
- Reverse
is also true. A 20% or more fall in value is considered as a bear market.
Anything less than 20% would be considered as a ‘correction’.
- Bear
markets occur when news flow tends to be worse than expectations, causing
investors to sharply punish stocks or sectors. This has happened in the US
where more bad news on the sub-prime front and US economy data has stifled
even the briefest of market recoveries.
- To
confirm a bear market, this weakness should persist for at least two
months. In bear markets, liquidity is extremely tight, volumes tend to be
low and market breadth tends to be poor
- Some
experts believe that for emerging markets such as India, which tend to be
more volatile, the correction needs to be steeper at 30-35 per cent.
- In
every bear market, there tends to be bear market rallies or a bear market
pullback, where the market rises 10-15 per cent only to decline yet again.
The bounce-back usually occurs when some stocks or sectors are ‘oversold’,
to borrow a term used by technical analysts.
- Worst
bear market conditions are followed by great bounce backs.
That covers Bulls, bears and stags.
There is an old saying which would further give authenticity to our bear story-
“Never sell a bear skin unless you have one.”
There is an old saying which would further give authenticity to our bear story-
“Never sell a bear skin unless you have one.”