UNDERSTAND YOUR MARKET - BULL OR BEAR

By Ruma Dubey

The Indian markets are currently going through a very volatile patch. There is no straight characteristic as such – we do not know if this is ‘bear’ or if we should call it a ‘bull’. Day-to-day the trend changes, flummoxing technical pundits and so called experts who give “accurate” market predictions.

In the market, we use the term “bear” and “bull” very loosely but do we really know in that sense, what these two terms actually mean? Apart from knowing the basic – falling market is bear, rising one is bull, do we know any other characteristics?

Thus for us to understand the true essence of these “animals” it would be best to understand their overall traits. At least then, when we say, “bull” we should know exactly what we are talking about.

Before we delve into that, it is pertinent to note that markets are essentially driven by demand and supply. So when it is supply driven, where the underlying emotion is that buy, buy, buy before all supply dries out, it is known as ‘anticipatory markets’. In this market, because it’s a buying frenzy, indeed demand shortage occurs – too much money chasing too few stocks. PEs reach unrealistic levels, way beyond the fundamentals. This is typical of a bull market; thus they are always anticipatory.

On the other hand, when supply is known and demand is projected, “realization” occurs – there comes in knowledge that this volatile relationship of demand and supply is much different than what was anticipated. Here, there is a lack of demand and such “realizing markets” are typical of bear markets.

A quick take on characteristics of Bull and Bear. Can you figure out where our markets stand?

BULL MARKETS

• Over extend their targets in price and time to the upside.
• Range and volatility increases.
• Always seen that there is increased volume and rising open interest
• At new highs, volumes will increase on panic short covering though will see reduced new buying.
• Like all good things in life, do not last long.
• Much steeper in angle, in terms of the rise than the fall of the bear market.
• The lows will come at the beginning of the week and highs will come later.
• The big “wall of stress” in a bull market - drives your greed to buy too much and stay too long, as you are afraid you will miss out.

BEAR MARKETS

• Falls short of its target – both in terms of price and time.
• Ranges and volatility decreases.
• Lower volumes and falling open interest.
• But when new lows are hit, volumes as well as open interest surges on panic selling.
• Often last for a few years – always more than a bull phase.
• There will be intermittent false rallies, spread over days but within a day or two, all gains of past few days gets wiped out.
• The highs will usually come early in the week and the lows will come later.
• The big “wall of stress” in a bear market - drives your fears to take profits too soon because you are worried the market will turn around on you and prove you wrong.