A bear market is a market trend where the prices of stocks are falling and many investors become big losers. People begin to sell their shares to try and preserve any gains they have made. This massive selling only drives the market lower and lower until it hits the bottom of the cycle.
A bull market is a market trend where the prices of stocks are rising or are expected to be making gains in the near future. This sense of a rising market gives investors confidence to continue to invest. During a bull market investors increase their share amounts and hope that the top of the cycle is not near.
These two types of market trends are used immensely in the financial world and help to present market cycles. Market cycles are also divided into two different lengths of time. Any cycle that lasts 2-3 years is considered a cyclical market. A cycle that lasts 10-20 years is considered a secular market. Beyond theses types of cycles, there are much smaller market cycles that can last a few months or even a few days.
Above is a chart that graphs how the NASDAQ has performed from mid-2006 to late-2012. To decide where a cycle ends and begins is very tricky as you can tell by looking at this specific chart. In the beginning of this chart it gradually increases, then suddenly drops during 2008 when we hit a recession. The market then begins to pick itself back up and has slowly increased to the value it is today. You could possibly say that from 2009 to 2012 has been a bull market, but with large drops seen through that era its very unlikely to be considered a bull market.
Through graphical charts investors try to predict when these market cycles will take place. Using models and statistical software, analysts are getting much better at providing accurate predictions for market trends. Below is a graph from StockCharts.com that shows how the Dow Jones Industrial Average has performed in the last 50 years.
Using this graph you can notice that from 1960 to about 1982 there is a secular bear market. Prices tend to move left to right during these cycles and do not increase in price substantially. This cycle ends in 1982 when you begin to see a bull market with great investor confidence and huge gains. From 1982 to about 2000 there is a secular bull market present as you can see easily by looking at the graph above. There does lie one small divot during that period which was in the year 1987. In 1987 we did have a short lasting depression, but by looking at the chart you can tell that it did not effect the secular bull market cycle.
In the same graph above, from 2000 to 2012 the market seems to be in secular bear market with prices not increasing substantially. The largest dip during this time was in 2008 when the housing market declined and government policies failed.
Now the question lies in the hands of all economists and financial analysts, "When will this cycle end?" To be able to accurately determine the point when the market will become bullish again can give you great insight on how and when to invest. Remember this: Buy at Bear, Sell in Bull.
