Bull Market Definition
A Bull Market is a prolonged period in which investment prices rise. A bull market tends to be associated with increasing investor confidence, motivating investors to buy in anticipation of future capital gains.
Bear Market Definition
A Bear Market is a prolonged period in which investment prices fall, accompanied by widespread pessimism. Investors anticipating further losses are motivated to sell, with negative sentiment feeding on itself in a vicious circle. The most famous bear market in history was after the Wall Street Crash of 1929 and lasted from 1930 to 1932, marking the start of the Great Depression. A bear market is the opposite of a bull market.
How to Identify Which One We Are In:
* The fast way: The Eyeball Method
This eyeball method is a simple way to see what type of market we might be in. It is faster and simpler than running the formulas below. However, it is imprecise. The eyeball method can give false signals, when conditions are close to changing.
First, pull up this chart of the S&P 500.
If the current day’s price is above the SMA 200 line, we are probably in a bull market. If the price is below the SMA 200 line, we are probably in a bear market. If you would like something better than “probably”, a precise definition is offered below.
* The precise way: The Bull Market and Bear Market Formulas
The following formulas can be used to determine whether we are in a bull market or a bear market on any particular day.
No one is required to work with these formulas, if they don’t wish. We run the calculations each day, and provide free alerts to our newsletter when the market changes.
The formulas are presented for the benefit of those who are technically inclined. Scroll down to read the formulas.
~ ~ ~
How did the Bull Market and Bear Market get their names? One theory says that it is about how the animals stand. Notice that the bulls neck is angled up, and the bears neck is angled down.
The Formulas:
Introduction and Data Sources
All prices used by these formulas refer to the daily closing price of the S&P 500, as reported by the stock symbol: (^GSPC).
The formulas rely on a mathematical construct called a Simple Moving Average (SMA).
The formulas implement a “switching delay”. When we switch from a bull market to a bear market, or vice versa, we cannot switch back to the other market type for at least 10 days.
Preparation
* Gather all the information we will need:
- “current_day_close” is the closing price of S&P 500 on the current day.
- “sma_200″ is the 200 day simple moving average of the closing price of the S&P 500 as of the current day.
- “sma_20″ is the 20 day simple moving average of the closing price of the S&P 500 as of the current day.
Step 1) Implement the switching delay.
Did we switch market types less than 10 days ago?
If True: The current market type is considered to be bull if the previous day was bull, or bear if the previous day was bear. No further calculation is needed.
If False: Continue to step two.
Step 2) Check for a bear market.
Is (current_day_close < (sma_200 x .95))?
If True: We are in a bear market.
Change investment positions and alert your friends if yesterday was a bull market.
If False: Continue to step three.
Step 3) Check for a bull market.
Is (sma_20 > (sma_200 x 1.02))?
If True: We are in a bull market.
Change investment positions and alert your friends if yesterday was a bear market.
If False: Continue to step four.
Step 4) No change required.
The current market type is considered to be bull if the previous day was bull, or bear if the previous day was bear. No further calculation is needed.
