DEFINITION of Rally
A rally is a period of sustained increases in the prices of stocks, bonds or indexes. This type of price movement can happen during either a bull or a bear market.
WHAT IT IS IN ESSENCE
It is known as either a bull market rally or a bear market rally.
This will generally follow a period of flat or declining prices.
An increase in prices during a primary trend bear market is called a bear market rally.
It is sometimes defined as an increase of 10% to 20%. The bear market rallies typically begin suddenly and are often short-lived.
Rallies are caused by an increase in the amount of people buying into a market. That increased demand leads to increases in price.
They can occur in both bull and bear markets. With a bear market rally typified as a brief period of upward momentum in an otherwise downward trajectory.
The sharp rise in the price of a commodity, security, or the entire market, after a period of decline, this is it.
A rally is a significant short-term recovery in the price of a stock or commodity. Or of a market in general, after a period of decline or sluggishness.
Stocks that make a particularly strong recovery in a particular sector or in the market as a whole are often said to be leading the rally. A reference to the term’s origins in combat, where an officer would lead his rallying troops back into battle.
While a rally may signal the beginning of a bull market, it doesn’t necessarily do so.
HOW TO USE
Traders should also note that at times, the bear market can fall more than 20%, although the market could give the illusion that the wave of selling is done with. One needs to be especially careful here as there is no rule of thumb. Sometimes, the price can fall as much as 20% and at times even 30%. It all depends on the market behavior and the broader market sentiment.
The trick is whether volume returns to the picture. That lacks, and until you see a day where 90% of the trading volume is to the upside, rallies are suspect. Don’t think the momentum will have truly shifted.