In the late 1500s, people enjoyed bull and bear-baiting. They gambled on which dogs could kill a bear chained to a post. Surprisingly, bear-baiting still occurs in South Carolina, although it’s illegal in the other 49 states.
That’s how bears and bulls first became linked in people’s minds. In the 17th century, hunters would sell a bearskin before catching a bear. In the stock market, short sellers did the same thing. They sold shares of stock before they owned them. They bought the shares the day they were to deliver them. If share prices dropped, they would make a profit. They only made money in a bear market.The phrases were first published in the 18th-century book, “Every Man His Own Broker,” by Thomas Mortimer. Two 19th century artists made the terms even more popular. Thomas Nast published cartoons about the slaughter of the bulls on Wall Street in Harper’s Bazaar. In 1873, William Holbrook Beard painted the stock market crash using bulls and bears.
A bear market is when the price of an investment falls at least 20% or more from its 52-week high. For example, when the Dow Jones Industrial Average fell to 23,553.22 on March 11, 2020, we entered a bear market, because that was more than 20% lower than the Dow’s most recent 52-week high of 29,551.42.
Bear markets can occur in any asset class. In stocks, a bear market is typically measured by an index like the Dow, the S&P 500, or the NASDAQ Composite. In bonds, a bear market can occur in U.S. Treasuries, municipal bonds, or corporate bonds. Bear markets also happen with currencies, gold, and commodities such as oil. They don’t, however, apply to consumer prices. When those fall, it’s called deflation
A ferocious bear market can wipe out years of hard-won gains made in a bull market. That’s why it’s important not to get overzealous about pull back in bear market and develop a habit of taking profits on a regular basis in shorter timeframe.
How to Recognize a Bear Market? There are variations on the definition of a bear market, and some say it’s a 20% drop from a “recent high,” or are even less specific. According to the U.S. Securities and Exchange Commission, a bear market occurs when a broad market index falls by 20% or more over at least a two-month period.The average length of a bear market is 367 days. Conventional wisdom says it usually lasts 18 months. Between 1900 and 2008, bear markets occurred 32 times with an average duration of 367 days. They happened once every three years. Bear markets are accompanied by recessions, periods when the economy stops growing and instead contracts, leading to high unemployment rates. You can recognize a bear market if you know where the economy is in the business cycle. If it’s just entering the expansion phase, then a bear market is unlikely. But if it’s in an asset bubble, or if investors are behaving with irrational exuberance, then it’s probably time for the contraction phase and a bear market.
Causes A bear market is caused by a loss of investor, business, and consumer confidence. As confidence recedes, so does demand. This is the tipping point in the business cycle. It’s where the peak, accompanied by irrational exuberance, moves into contraction.This loss of confidence can be triggered by a stock market crash. That occurs when stock prices plummet 10% in a day or two, as they did in March 2020, when the outbreak of the new coronavirus rocked the financial markets broadly. Crashes are dangerous because prices only have to fall another 10% to trigger a bear market.
5% plus minus fluctuation in Index has become new normal. Global Markets aren’t quite back to normal, not by a long shot. But they are getting a little less frantic.
VIX has become extremely high and during March 2020, it rose exponentially.
So it is worth taking a broader look than just the next few days. The concept of the debt SUPERCYCLEwas introduced in the 1970s, describing how policy makers wouldn’t let financial imbalances be fully unwound during downturns. However, the debt SUPERCYCLEhalted at the end of 2014, and said it was partly vindicated by household borrowing, relative to income, retreating and the lack of corporate capital spending, though companies did splash out on stock buybacks and mergers and acquisitions.
The shock of the recession and destruction of wealth will leave a legacy of increased financial caution with households wanting to build precautionary savings and companies striving to repair damaged balance sheets. This was enough to put the final nail in the coffin. It wouldn’t be surprising to see personal savings rise to the double-digit levels of the 1980s.
The flip side of that private-sector retrenching is that there is “the start of an extraordinary surge in public sector deficits and debt from already high levels.
US Federal Reserve, in turn, will remain a massive buyer of Treasury bonds, even as the economy recovers because it will not want to risk higher yields undermining growth. As globalization retreats, this will set the stage for inflation to return down the line. It has long been argued that a sustained upturn in inflation would be preceded by a final bout of deflation. The revival of inflation may be gradual but its insidious nature ultimately will make it more dangerous.As for the market implications, the stocks look far more compelling in the medium term than bonds, since yields are so low already and because monetary policy will be supportive. But the short-term outlook is cloudier since no one knows how long the recession will last.
Charting is a technique used in analysis of support and resistance level. These are trading range in which the prices move for an extended period of time, saying that forces of demand and supply are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning. When supports are break then it’s become a resistance and vice versa.