Bull and Bear are the terms to describe the general conditions of the stock market. These do not refer to short term fluctuations – a bear market is commonly understood as one where prices of key stocks have fallen in price by 20% or more over a period of at least 2 months. Even during a bear market, however, prices may increase temporarily. Bull markets are the opposite of bear markets – they are indicated by a rise in prices of key stocks over a certain period of time. At the extremes, an exaggerated bear market can lead to a crash brought on by panic selling. An exaggerated bull market can be caused by over-enthusiasm of investors. It leads to a market 'bubble' that will eventually burst.
Although most money can be made during bull markets, there are also opportunities during bear markets. Knowing the characteristics of each type of market allows investors to profit from them. Bear markets represent opportunities to pick up stocks at bargain prices. Getting in near the end of a bear market offers the greatest chance for profit. The prices will most likely fall before they recover, so the investor should be prepared for some short term loss. Short-selling is also an investment strategy during bear markets. Short selling involves selling stock that you do not own in the anticipation of further price drops, so that when it comes time to deliver you can buy the stock for less than you sold it. Fixed return investments such as bonds can be used to generate income during a bear market. So called 'defensive stocks' are also safe to buy at any time. These include government owned utilities that provide necessities no matter what state the economy is in.
BULLISH
• the economy is great,
• people are finding jobs,
• gross domestic product (GDP) is growing,
• interest rates are reasonable and
• stocks are rising.
Picking stocks during a bull market is easier because everything is going up. Bull markets cannot last forever though, and sometimes they can lead to dangerous situations if stocks become overvalued. If a person is optimistic and believes that stocks will go up, he or she is called a "bull" and is said to have a "bullish outlook".
BEARISH
• the economy is bad,
• recession is looming
• Investors lose confidence ,
• companies may begin laying off workers and
• stock prices are falling.
Bear markets make it tough for investors to pick profitable stocks. One solution to this is to make money when stocks are falling using a technique called short selling. Another strategy is to wait on the sidelines until you feel that the bear market is nearing its end, only starting to buy in anticipation of a bull market. If a person is pessimistic, believing that stocks are going to drop, he or she is called a "bear" and said to have a "bearish outlook".
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