Concept of bear market
Bear market means a downtrend market phenomenon with a duration of 1 to 3 years. It represents a period of great volatility and successive negative returns.
A bear market situation is characterized by the fall in prices of securities, with a general pessimism coexisting, which causes a downward spiral of the stock market that is sustained. Investors anticipate losses as pessimism and selling pressure increases.
A bear market should not be confused with a correction, which is a short-term trend that lasts less than two months. While the corrections offer a good time for investors to find a point of entry into stock markets, a bear market rarely provides that opportunity because it is very difficult to predict recoveries. Trying to recoup losses can be a difficult battle unless investors are short sellers or use other strategies to make gains in falling markets. Between 1900 and 2015 there were 32 bear market situations, with an average of one every 3-5 years. The latest situation coincided with the global financial crisis, which began in October 2007 with the outbreak of the subprime crisis in the United States. From October 2007 to March 2009, the main US index, the Dow Jones index lost 54% of its value before the crisis.
Similarly, these prolonged declining market trends are usually set before economic contractions. Thus, before a recession in the economy, the financial market, especially the stock market, has already fallen. This fall in prices is wrapped in pessimism.
The use of “bull” and “bear” to describe markets comes from the way animals attack their opponents. A bull pushes its horns into the air, while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it is a bull market. If the trend is down, it is a bear market.
Bear market rally
A period in which stock prices rise during a bear market. The recovery in a bear market is usually a short-lived increase in the market after a period of market decline and is followed by another period of market decline leading to a sharp downward trend.
Although there are no official guidelines for a bear market rally, it is sometimes defined as a global market increase of 10-20% during a global bear market. There are many examples of a bear market rally in the modern history of the stock market, including the recovery of the Dow Jones bear market after the stock market crash of 1929.