There are typically two directions that the market will take, up or down. Some will argue that there is a third direction, sideways. However, we are going to focus on the up market and the down market. When a market is trending upward, that is called a bull market. A market that is trending downward is called a bear market. Bear markets and bull markets are not that hard to spot if you know what to look for.
Image via kanjiroushi on Flickr
How to Spot a Bull Market
When you see the stock market begin to rise and most stocks are showing positive or green for the day, you should notice that as the signs of a bull market. There may be certain stocks that will not rise with the overall market however, in general a bull market is like a rising tide that lifts all boats. You should also know how to look for the signs of a bull market that is on the way.
- Positive News: Good economic news usually is a tip off that a bull market is on its way. If you keep hearing good news then you should expect to see more signs of a bull market.
- Investor Confidence: This is a sign that you will notice around you. If you start to hear positive comments about the economy and the markets from the news and people around you, that is a sign of a bull market.
How to Spot Bear Market
Spotting a bear market is relatively easy related to spotting a bull market. This is because markets tend to fall faster on fear than they do o positive news. A bear market usually affects all stocks across the board. When stocks begin to trend downward, and prices are consistently dropping, that is a bear market. There are a few ways to spot a bear market and they are very similar to the ways that you can use to spot a bull market.
- Negative news: If you start to hear negative news on the economy expect the onset of a bear market. Consistent bad news could result in a recession and market downturn.
- Weak Investor Confidence: The same way that strong investor confidence helps to verify a bull market, weak confidence from investors is a sign that a bear market is prevalent.
Good Economic Indicators
There are a few economic indicators that you should pay attention to if you are interested in keeping up with the bull and bear markets. These are news reports on the overall economy that are released on a set schedule and usually at 8:30 AM eastern standard time. Here are a few of them and what mean for you.
Consumer Price Index (CPI): This is probably one of the most important economic indicators that will give you an idea of how the overall economy is doing. The CPI is a measure of what it costs the average consumer for a basket of goods. When prices are rising, there are fears of inflation and but as long as the inflation stays within expectations, a rising CPI is an indicator of a growing economy.
Unemployment Rate: The unemployment rate is also a good indicator of a bull or bear market. There is an expected level of unemployment as people change jobs and move; however, if the unemployment rate rises too high, then expect more bearish signs to follow.
Home Sales: An increase in home selling activity signals a bull market because as more people buy homes, more builders are hired and more supplies are purchased. If home sales are less than expected, you should see a general bearish day. Continued bad news could give way to a bear market.
Do you pay attention for bear and bull market signs?
This is a staff post from LaTisha at Financial Success for Young Adults where she writes about budgeting for beginners and tips for successful investing. Visit YoungAdultFinances.com to see more from her.
{ 1 trackback }