A bull market is a period of time wherein the prices of securities and assets go up giving short traders and investors significant gains. It is a market condition that everybody loves. Though such term is used extensively and more in correlation to the stock market, it is also used and manifested in real estate, properties, foreign exchange, and other investments.
Some bull markets last for weeks, some months, and some extend for as long as a year. It depend on how strong the market sentiment is or what pushes it to remain and continue to go bullish. So what are the causes of making the market sentiment bullish? Here’s a few of the most common causes of bull markets.
1.) Seasonal trends. Christmas, new year, a newly elected president or a leader, these are a few of the many seasonal trends in the market that generally push prices up. Market sentiment is very high during these times. December is a month where stock prices normally soar especially on the commodities sector. Christmas is normally a time to spend and traders and investors take advantage of such psychology by positioning themselves early. Starting a new year also results to a very strong market. Many traders exit their stock positions during late December in order to cut taxes. These traders buy back or reposition themselves early in January resulting an increase in demand in stocks pushing its prices higher. Politics is also a determining factor in a bull market. Elections normally give out positive sentiment especially if the incumbent or previous administration or leader isn’t as good as the expectations of a new one.
2.) Recession and depression. Strong bullish markets normally follow either a recession or a depression. A recession or a depression occurs because of very weak market sentiment and confidence prompting businesses to run for cover and playing it safe by not getting too much involved in the market. A strong positive catalyst such as a solution to the recession or depression reverses the market trend and will result to very strong positive sentiment. Some or if not most bull runs came after recessions and depressions. The deeper the dive, the higher the climb. Experienced and professional traders and investors make a lot of money during recessions and depressions by being patient and waiting for a reversal.
3.) Economics. The stock market, foreign exchange, and other securities and assets all boil down to the concept of supply and demand or in other words, economics. Higher demand means prices and values of assets increase. It is believed that different stocks and securities have a book or face value and traders and investors buy and sell either below or above their book values. If a certain stock trades below its book value, it is considered undervalued and its demand is high. Such stock’s price will increase in time. On the other hand, some stocks are trading over their book values and such stocks are considered overvalued. Overvalued stocks are said to be expensive and its price or value are expected to decrease in time. Understanding economics is a key in understanding the money market. High demand makes the supply less thus pushing prices up causing a bull market.
4.) Investor psychology and emotions. Market sentiment is one very important aspect in trading and investing aside from technical analysis and fundamental analysis. If a market sentiment is strong, prices tend to go up because people are willing to buy stocks and other securities. However, if market sentiment is weak, people tend to sell or even cut their losses if necessary prompting prices to go down. Fear and greed are two players in the market. Fear results to massive selling and decrease in price while greed may push stock prices higher. Greed normally result if the market’s momentum is getting stronger and stronger. A bull market is divided into different stages and it is very important to position during the initial stages of a bull market. Experienced traders and investors know how to spot a potential bull market and they get in early even if the momentum is still weak and growing or even if there is no momentum yet at all.