A rally is a period during which prices in the financial markets go up. Rallies tend to be of shorter duration-- days, weeks or months -- than bull markets, which can last for years.
Eric, Jill and John met at a bar to relax together in the evening. They are talking about what has happened to each of them throughout the day. Suddenly, Jill’s attention shifts to the TV set on the wall.
During a rally the price of an asset, group of assets or the prices on the whole market tend to increase. In other words, it is a period during which prices follow an upward trend . A rally is mostly synonymous with a – the difference is that rallies last a shorter time than bull markets. Moreover, rallies may occur both during bull and bear markets . If we see a rally within a bear market, it can sometimes be called a bear rally. This means that the rally is expected to be short-lived after which the price will reverse and the consecutive decline will be bigger than the rally.
Generally, a bull market is a very long-term rally and a rally is a small bull market.
Bear Market Rally or Bull Market?
From a precious metals investor’s point of view it is important to be able to identify whether an observed upward movement is just a rally during a (taking a bigger decline as a "bear market") or an end of a bear market and a beginning of a bull market. To explain that, let’s take a look at a chart of SPDR Gold Shares (ticker: GLD, charts courtesy of Yahoo! Finance).
The chart presents the prices of SPDR Gold Shares between May 2008 and April 2009. It is relatively easy to notice a bear market between July and November 2008 (red line). This bear market was interrupted by a rally in September/October 2008 (green line). However, the rally was short-lived and was followed by further price declines. It did not end the bear market; therefore, it is a bear market rally.
Now, let’s take a look at the same chart, however with a different rally highlighted.
As you can see a rally in November 2008 was successful in breaking the bear market and reversing the market trend (the new trend is symbolized by the orange line). This rally started a bull market for gold.
For a precious metals investor it is crucial to be able to identify a bear market rally from the start of a bull market, as a bull market implies that the prices are likely to go up in a longer time frame. To tell one from another one usually has to carry out thorough analysis of the market, check set ofand examine .Back