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Statues of the two symbolic beasts of finance, the bear and the bull, in front of the Frankfurt Stock Exchange.

A market trend is a putative tendency of a financial market to move in a particular direction over time.^[1] These trends are classified as secular for long time frames, primary for medium time frames, and secondary for short time frames.^[2] Traders identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.

The terms bull market and bear market describe upward and downward market trends, respectively^[3], and can be used to describe either the market as a whole or specific sectors and securities.^[2]

Secular market trend[link]

A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of primary trends. A secular bear market consists of smaller bull markets and larger bear markets; a secular bull market consists of larger bull markets and smaller bear markets.

In a secular bull market the prevailing trend is "bullish" or upward-moving. The United States stock market was described as being in a secular bull market from about 1983 to 2000 (or 2007), with brief upsets including the crash of 1987 and the dot-com bust of 2000–2002.

In a secular bear market, the prevailing trend is "bearish" or downward-moving. An example of a secular bear market was seen in gold during the period between January 1980 to June 1999, culminating with the Brown Bottom. During this period the nominal gold price fell from a high of $850/oz ($30/g) to a low of $253/oz ($9/g),^[4] and became part of the Great Commodities Depression.

Secondary market trend[link]

Secondary trends are short-term changes in price direction within a primary trend. The duration is a few weeks or a few months.

One type of secondary market trend is called a market correction. A correction is a short term price decline of 5% to 20% or so.^[5] A correction is a downward movement that is not large enough to be a bear market (ex post).

Another type of secondary trend is called a bear market rally (sometimes called "sucker's rally" or "dead cat bounce") which consist of a market price increase of only 10% or 20% and then the prevailing, bear market trend resumes. Bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading down to the market bottom in 1932, and throughout the late 1960s and early 1970s. The Japanese Nikkei 225 has been typified by a number of bear market rallies since the late 1980s while experiencing an overall long-term downward trend.

Primary market trend[link]

A primary trend has broad support throughout the entire market (most sectors) and lasts for a year or more.

Bull market[link]

A bull market is associated with increasing investor confidence, and increased investing in anticipation of future price increases (capital gains). A bullish trend in the stock market often begins before the general economy shows clear signs of recovery.

Examples[link]

India's Bombay Stock Exchange Index, SENSEX, was in a bull market trend for about five years from April 2003 to January 2008 as it increased from 2,900 points to 21,000 points. Notable bull markets marked the 1925-1929, 1953-1957 and the 1993-1997 periods when the U.S. and many other stock markets rose; while the first period ended abruptly with the start of the Great Depression the end of the later time periods were mostly periods of soft landing, which became large bear markets. (see: Recession of 1960-61 and the dot-com bubble in 2000-01)

Bear market[link]

A bear market is a general decline in the stock market over a period of time.^[6] It is a transition from high investor optimism to widespread investor fear and pessimism. According to The Vanguard Group, "While there’s no agreed-upon definition of a bear market, one generally accepted measure is a price decline of 20% or more over at least a two-month period."^[7]

Examples[link]

A bear market followed the Wall Street Crash of 1929 and erased 89% (from 386 to 400) of the Dow Jones Industrial Average's market capitalization by July 1932, marking the start of the Great Depression. After regaining nearly 50% of its losses, a longer bear market from 1937 to 1942 occurred in which the market was again cut in half. Another long-term bear market occurred from about 1973 to 1982, encompassing the 1970s energy crisis and the high unemployment of the early 1980s. Yet another bear market occurred between March 2000 and October 2002. The most recent examples occurred between October 2007 and March 2009.

Market top[link]

A market top (or market high) is usually not a dramatic event. The market has simply reached the highest point that it will, for some time (usually a few years). It is retroactively defined as market participants are not aware of it as it happens. A decline then follows, usually gradually at first and later with more rapidity. William J. O'Neil and company report that since the 1950s a market top is characterized by three to five distribution days in a major market index occurring within a relatively short period of time. Distribution is a decline in price with higher volume than the preceding session.

Examples[link]

The peak of the dot-com bubble (as measured by the NASDAQ-100) occurred on March 24, 2000. The index closed at 4,704.73 and has not since returned to that level. The Nasdaq peaked at 5,132.50 and the S&P 500 at 1525.20.

A recent peak for the broad U.S. market was October 9, 2007. The S&P 500 index closed at 1,576 and the Nasdaq at 2861.50.

Market bottom[link]

A market bottom is a trend reversal, the end of a market downturn, and precedes the beginning of an upward moving trend (bull market).

It is very difficult to identify a bottom (referred to by investors as "bottom picking") while it is occurring. The upturn following a decline is often short-lived and prices might resume their decline. This would bring a loss for the investor who purchased stock(s) during a misperceived or "false" market bottom.

Baron Rothschild is said to have advised that the best time to buy is when there is "blood in the streets", i.e., when the markets have fallen drastically and investor sentiment is extremely negative.^[8]

Examples[link]

Some examples of market bottoms, in terms of the closing values of the Dow Jones Industrial Average (DJIA) include:

• The Dow Jones Industrial Average hit a bottom at 1738.74 on 19 October 1987, as a result of the decline from 2722.41 on 25 August 1987. This day was called Black Monday (chart^[9]).
• A bottom of 7286.27 was reached on the DJIA on 9 October 2002 as a result of the decline from 11722.98 on 14 January 2000. This included an intermediate bottom of 8235.81 on 21 September 2001 (a 14% change from 10 September) which led to an intermediate top of 10635.25 on 19 March 2002 (chart^[10]). The "tech-heavy" Nasdaq fell a more precipitous 79% from its 5132 peak (10 March 2000) to its 1108 bottom (10 October 2002).

• A bottom of 6,440.08 (DJIA) on 9 March 2009 was reached after a decline associated with the subprime mortgage crisis starting at 14164.41 on 9 October 2007 (chart^[11]).

Investor sentiment[link]

Investor sentiment is a contrarian stock market indicator.

By definition, the market balances buyers and sellers, so it's impossible to literally have 'more buyers than sellers' or vice versa, although that is a common expression. The market comprises investors and traders. The investors may own a stock for many years; traders put on a position for several weeks down to seconds.

Generally, the investors follow a buy-low, sell-high strategy.^[12] Traders attempt to "fade" the investors' actions (buy when they are selling, sell when they are buying). A surge in demand from investors lifts the traders' asks, while a surge in supply hits the traders' bids.

When a high proportion of investors express a bearish (negative) sentiment, some analysts consider it to be a strong signal that a market bottom may be near. The predictive capability of such a signal (see also market sentiment) is thought to be highest when investor sentiment reaches extreme values.^[13] Indicators that measure investor sentiment may include:^{[citation needed]}

• Investor Intelligence Sentiment Index: If the Bull-Bear spread (% of Bulls - % of Bears) is close to a historic low, it may signal a bottom. Typically, the number of bears surveyed would exceed the number of bulls. However, if the number of bulls is at an extreme high and the number of bears is at an extreme low, historically, a market top may have occurred or is close to occurring. This contrarian measure is more reliable for its coincidental timing at market lows than tops.
• American Association of Individual Investors (AAII) sentiment indicator: Many feel that the majority of the decline has already occurred once this indicator gives a reading of minus 15% or below.
• Other sentiment indicators include the Nova-Ursa ratio, the Short Interest/Total Market Float, and the Put/Call ratio.

Changes with consumer behavior[link]

Market trends are fluctuated on the demographics and technology. In a macro economical view, the current state of consumer trust in spending will vary the circulation of currency. In a micro economical view, demographics within a market will change the advancement of businesses and companies. With the introduction of the internet, consumers have access to different vendors as well as substitute products and services changing the direction of which a market will go.

Despite that, it is believed that market trends follow one direction over a matter of time, there are many different factors that can change this idea. Technology s-curves as is explained in the book The Innovator's Dilemma. It states that technology will start slow then increase in users once better understood, eventually leveling off once another technology replaces it. This proves that change in the market is actually consistent.

Etymology[link]

This unreferenced section requires citations to ensure verifiability.

The precise origin of the phrases "bull market" and "bear market" are obscure. The Oxford English Dictionary cites an 1891 use of the term "bull market". In French "bulle spéculative" refers to a speculative market bubble. The Online Etymology Dictionary relates the word "bull" to "inflate, swell", and dates its stock market connotation to 1714.^[14]

The fighting styles of both animals may have a major impact on the names. When a bull fights it swipes its horns up; when a bear fights it swipes down on its opponents with its paws.^[15] When the market is going up, it is similar to a bull swiping up with its horns. When the market is going down it is similar to a bear swinging its paws down.

One hypothetical etymology points to London bearskin "jobbers" (market makers),^[16] who would sell bearskins before the bears had actually been caught in contradiction of the proverb ne vendez pas la peau de l'ours avant de l’avoir tué ("don't sell the bearskin before you've killed the bear")—an admonition against over-optimism.^[17] By the time of the South Sea Bubble of 1721, the bear was also associated with short selling; jobbers would sell bearskins they did not own in anticipation of falling prices, which would enable them to buy them later for an additional profit.

Another plausible origin is from the word "bulla" which means bill, or contract. When a market is rising, holders of contracts for future delivery of a commodity see the value of their contract increase. However in a falling market, the counterparties—the "bearers" of the commodity to be delivered—win because they have locked in a future delivery price that is higher than the current price.^{[citation needed]}

Some analogies that have been used as mnemonic devices:

• Bull is short for 'bully', in its now mostly obsolete meaning of 'excellent'.^{[citation needed]}
• It relates to the speed of the animals: bulls usually charge at very high speed whereas bears normally are thought of as lazy and cautious movers^{[citation needed]}—a misconception because a bear, under the right conditions, can outrun a horse.^[18]
• They were originally used in reference to two old merchant banking families, the Barings and the Bulstrodes.^{[citation needed]}
• The word "bull" plays off the market's returns being "full" whereas "bear" alludes to the market's returns being "bare".^{[citation needed]}
• "Bull" symbolizes charging ahead with excessive confidence whereas "bear" symbolizes preparing for winter and hibernation in doubt.^{[citation needed]}

In describing financial market behavior, the largest group of market participants is often referred to, metaphorically, as the herd. This is especially relevant to participants in bull markets since bulls are herding animals. A bull market is also sometimes described as a bull run. Dow Theory attempts to describe the character of these market movements.^[19]

International sculpture team Mark and Diane Weisbeck were chosen to re-design Wall Street's Bull Market. Their winning sculpture, the "Bull Market Rocket" was chosen as the modern, 21st century symbol of the up-trending Bull Market.^{[citation needed]}

See also[link]

• Black Monday
• Bull-bear line
• Business cycle
• Don't fight the tape
• October 27, 1997 mini-crash
• September 11, 2001
• Stock market downturn of 2002
• Trend following
• Recession
• Economic expansion
• Market sentiment

References[link]

External links[link]

• Market trend definition, explanations, and examples provided in simple terms
• Braze, David. What Is a Bear Market? The Motley Fool.
• Stock Market Dictionary
• Stock Market Trends Search

Robert R. Prechter, Jr. (b. 1949) is an American author and stock market analyst, known for his financial forecasts using the Elliott Wave Principle. Prechter is an author and co-author of 14 books, and editor of 2 books ^[1], his book Conquer the Crash is a New York Times bestseller.^[2] He also has published monthly financial commentary in the newsletter The Elliott Wave Theorist since 1979, and is the founder of Elliott Wave International and New Classics Library.^[3][4] Prechter served on the board of the Market Technicians Association for nine years, and as the Association's President in 1990-1991. In recent years Prechter has supported the study of socionomics, a theory about human social behavior.^[5][6]

Biography[link]

Prechter attended Yale University and graduated with a B.A. degree in psychology in 1971. His career as an analyst began when he joined Merrill Lynch as a market technician in 1975, where he learned much about the trade from Merrill's Chief Market Strategist, Robert Farrell (June 1982).^[4][7] There Prechter also learned of Ralph Nelson Elliott and the Elliott wave principle and was deeply intrigued:

So I tracked down R.N. Elliott's original books. They weren't even in the Library of Congress. But I finally dug around in the New York Public Library and found a catalog card listing a copy of them on microfilm and had photocopies made. I was amazed to find that there was a wealth of information that had been lost to Wall Street.^[8]

Prechter has also said, "after I decided to make markets a career, I realized that mass psychology is what they're all about." ^[8]

Prominence[link]

In 1979 Prechter left Merrill Lynch and published the first subscription issue of the Elliott Wave Theorist. The 1970s had been very bullish years in the gold market but mostly bearish for stocks, yet his Elliott wave analysis called for a long-term reversal lower in gold (February 1980)^[4][9] and a long-term "super bull market underway" in stocks (October 1982).^[4][10] Because these forecasts proved mostly correct—especially for the stock indexes—Prechter's following grew.

His visibility increased further after he won the U.S. Trading Championship in 1984, with a then-record 444% return in a monitored options trading account.^[11] He was profiled in many financial and business publications and named "Guru of the Decade" by the Financial News Network (now CNBC) for the 1980s.^[12]

Prechter has been forecasting a large-scale bear market, as explained in his book Conquer the Crash.^[13]

Re-introduces Elliott[link]

Much of Prechter's career as a publisher includes his efforts to re-introduce R.N. Elliott's wave principle to investors.^[7] He compiled and republished all of Elliott's available writings, including the 1938 "Wave Principle," and the "Interpretive" and "Forecast" letters (1938–1946). Prechter also published a brief biography of Elliott and the collected Elliott wave writings of the few technicians who practiced wave analysis in the 1950s and 1960s (Charles Collins, Hamilton Bolton, A.J. Frost, Richard Russell).

Still, not all the popular exposure to Elliott wave analysis was the result of Prechter's deliberate efforts. In the few years before and after 1987, media coverage inflated Prechter's "guru" status to extremes, including the assertion that his forecasts could single-handedly "cause" the stock market to rise or fall^[14] (a proponent of technical analysis, Prechter considered this absurd). In the months after Black Monday in October 1987, subscriptions to Prechter's Elliott Wave Theorist surged to some 20,000. That number declined in the early 1990s (as did the subscription levels of most other financial publishers), though "Prechter has done more to popularize and spread Elliott's philosophy than anyone else."^[15]

Socionomics[link]

In 1979, Prechter postulated that social mood drives financial, macroeconomic and political behavior, in contrast to the conventional notion that such events drive social mood.^[16] His description of social mood as the driver of cultural trends reached a national audience in a 1985 cover article in Barron's.^[17] Prechter coined the term "socionomics" and in 1999 published an exposition of socionomic theory, The Wave Principle of Human Social Behavior.^[5] In 2003, he published an anthology of empirical work in the field, Pioneering Studies in Socionomics.

Since then, the counter-intuitive premise of the socionomic hypothesis—that social mood drives the character of social events—has gained attention in academic journals,^[18][19][20] books,^[21][22] the popular press,^[23][24][25] universities,^[26] academic conferences^[27][28] and in research funded by the National Science Foundation.^[29][30]

Criticism[link]

While Prechter has his admirers, he has been criticized by media and pundits for his long term record. For example, The Wall Street Journal ran a page one article in August 1993 with the headline, "Robert Prechter sees his 3600 on the Dow – But 6 years late," in reference to Prechter's 1987 forecast for the Dow Jones Industrial Average.^[31] Technical analyst David Aronson wrote:

The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.^[32]

Notes[link]

References[link]

• Essentials of Technical Analysis for Financial Markets by James Chen. Published by John Wiley and Sons. ISBN 978-0-470-53729-9.
• Socionomics: The Science of History and Social Prediction by Robert Prechter. Published by New Classics Library. ISBN 0-932750-57-5.
• Prechter's Perspective by Robert Prechter. Published by New Classics Library. ISBN 978-0-932750-61-7.
• Evidence-Based Technical Analysis: Applying the Scientific Method and Statistical Inference to Trading Signals by David R. Aronson. Published by John Wiley and Sons. ISBN 978-0-470-00874-4
• Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression (2 ed.) by Robert Prechter. Published by John Wiley and Sons. ISBN 978-0-470-56797-5.
• Behavioral Trading: Methods for Measuring Investor Confidence and Expectations by Woody Dorsey. Published by Texere. ISBN 1-58799-164-0.

External links[link]

• Robert Prechter.com
• Socionomics Institute