What Is A Bull Market And How To Spot One

Bull Market

A bull market is a financial term to used to express when the price of a group of stocks, bonds, currencies or commodities are steadily rising or expected to.

bull market spy

The above chart is of the SPDR S&P 500 ETF (NYSE: SPY), notice from 2009 to the present the ETF has been rising steadily. It went from 70 to nearly 300 in less than decade.

According to data gathered by First Trust Advisors L.P, the average bull market period in the stock market has lasted 9 years. With an average cumulative total return of 480%

The longest bull market to date occurred between December of 1987 to March of 2000, ending with what is now known as the “dot com” bubble.

crude oil bull market

Bull markets are not just seen in the stock market, but also in commodities. The above chart is of crude oil futures, notice in 1998, crude futures were trading around $11 at one point. However, by the summer of 2008, it was trading near $150 per barrel.

A bull market can also occur in certain sectors of the market. For example, people’s demand for technology has caused semiconducter stocks to rise. Automated driving, smart home technology, virtual and augmented reality are all areas that need fast processing and computing power.

One company that’s taken advantage of the bull market in semi’s has been NVIDIA Corporation (NASD: NVDA).

nvidia bull market

The visual computing company has seen its stock rise from nearly $20 in the summer of 2015, to nearly as high as $250 in January of 2018.

What Happens To Bull Markets

When stocks are rising sentiment starts get more optimistic. Eventually that optimism turns into euphoria and investors get greedy while ignoring the risks.

We’ve recently seen this in the cryptocurrency market.  In July of 2017, bitcoin was trading under $2000. By December of 2017, it was nearly $20,000. And by February of 2018, it was trading as low as $6,000.

All bull markets end because optimism and greed levels get too high. Eventually stocks get too expensive, the buyers disappear, and panic selling occurs.

It’s important to study bull markets because history has a tendency to repeat itself in the financial markets.

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