What is a Bear Market Rally?
This is a key phrase for you to understand as you start to learn about how stock markets work. First, let’s define bear market. A bear market occurs when investors lose a great deal of money over a period of time. Typically, a bear market alternates between declines, recoveries, and then more declines. Those recovery periods are referred to as bear market rallies. A bear market rally is when the market goes up during the course of a bear market. Although one could make the argument that this bear market has done nothing but go straight down, most bear market don’t decline in a straight line. They have periods where the selling stops and investors can recover some of the loss. During the 2000 – 2002 bear market, the stock market actually went up 18% during one time period and 21% during another time period. Unfortunately, we have not had the advantage of seeing bear market rallies during this brutal bear. For that reason, this bear market has been tougher on investors. Investors have no
A bear market rally is a situation that comes about during a time when stock prices are generally trending downward. In the middle of a downward trend, it can occur that stock prices switch directions and rise as much as 15-20% over a relatively short period of time. A bear market rally usually begins quickly, and often without a clear cause. This sudden and significant rise in prices can be deceptive, as it will likely end as quickly as it began, to be followed by a continuation of the downward trend, called a bear market. A price spike such as this in the middle of a bear market is what is called a bear market rally.
