Bull Vs. Bear Market: Here's What They Mean And How You Can Profit (2024)

Investors weighing whether to buy and sell may be wondering what is a bull vs. bear market mean and how should they respond? The overall market condition is a key factor when deciding what to do about an individual stock.

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Bull Vs. Bear Market

• A bull market is a sustained rising stock market, sometimes defined as a 20% rally from a recent low. The term can also be used regardingbonds, currencies and other securities.
• Bulls are optimistic the stock market will continue to rise future and are likely to buy stocks.
• A bear market is triggered when the market falls 20% from a previous high over an extended period of time.
• Bears are pessimistic about the future and expect the stock market to fall.

Bull Vs. Bear Market Origins

It's unclear how bears and bulls got tied to financial markets. But here some theories:

Merriam-Webster says the term bear market came first, from a proverb about bearskin sellers in the 18th century: "Don't sell the bear's skin before you've killed him."

Another theory on the bull vs. bear market origin has the term "bull" referring not to the animal but bulletins to buy stocks on the London Stock Exchange in the 17th century. A board full of bulletins signaled a strong market vs. when it was bare.

Wall Street lore also says the terms came from how the animals attack: a bear slashes its claws downward while a bull thrust its horns upward.

Current Conditions: Bull Vs. Bear Market?

The bull market that started after the 2007 financial crisis is the longest in American history. The Dow Jones industrial average has quadruped during the historic run and the S&P 500 is up over 300%.

The financial crisis was the most recent bear market, but the Nasdaq and S&P 500 closed in bear market range in December 2018. However, the span of just a few days has led to debate on whether it was a real bear market— and whether the bull market is still in effect.

The December drop worried analysts that a full-fledged bear market is on the horizon.Sixty-five percent of institutional investors believe that the bull market will end this year, according to aNatixis survey.

Bull Market Buying Tips

According to IBD founderWilliam O'Neil, investors should watch for afollow-through day, which oftensignals the beginning of a new uptrend.

But that doesn't necessarily mean a new bull market has started. Instead, it's a good signal the market could rally into a solid bull market.

"No new bull market has ever started without a strong price and volume follow-through confirmation," O'Neil wrote in his book "How to Make Money in Stocks." "It pays to wait and listen to the market."

Investors should only buy stocks in bull markets, according to IBD'sCAN SLIMinvesting approach.

"You absolutely do not buy breakouts during a bear market," O'Neil wrote. "Most of them will fail."

New bull markets produce new stock market winners and the "industry that leads in one bull market normally won't come back to lead in the next," O'Neil wrote.

During a bull market, investors should focus ongrowth stocksand followCAN SLIMtoselect stocks and totime buying for maximum returns. You can follow thisstock buying check list.

Bear Market Survival Tips

The most important thing an investors can do in a bear market is stay mostly or entirely in cash.

O'Neil warns against "long term investing" of keeping stocks through thick and thin.

"Most stocks fall during a bear market, but not all of them recover," he wrote.

Amarket in correctionis also a bad time to invest. There's no specific percentage decline to signal a correction, but a 10% drop from the last high is the widely recognized benchmark.

Rather than look for a specific percentage drop, investors should watch out for warning signs of a market top: several distribution daysover a five-week span, leading stocks losing steam, and indexes falling below keysupportlevels.

Although the length varies, bear markets generallylasteight to nine months, according to CAN SLIM.Corrections usually last just few weeks ormonths.

It's tempting to look for good deals in penny stocks or beaten-up former leaders during a bear market, but investors shouldn't bargain hunt.

But a bear market doesn't mean investors should stay idle. Investors should spend time making a watch list of stocks to buy when the market improves. More experienced investors can tryshort sellingstock.

Here's how investors can use IBD's simple three-step routineto track market trends, find stocks to add to their watch lists and target the best time to buy and sell.

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