Bulls, Bears and Stags

Bulls, Bears and Stags

Hi there,

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 din’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.”

Have a nice day!