A bear market is every investor’s nightmare. Many bear markets begin when the economy and markets are steaming ahead and catch investors unawares. When it does arrive, a bear market creates panic and pessimism. However, for those who are able to forest the onset of a bear market and lighten stock investments in time, it presents a great opportunity.

Recognizing Bearish Signs

There are many signs of a bear market. However, Many investors ignore them.

These signs typically are at market top when there is a tendency to ignore ‘bad news’ and warning signs. Traders / investors start believing that the market will continue to go up and up and suddenly to decline.

It is important that traders / investors recognise bear market signals and remain prepared for it. This is not too difficult, as bear markets do not arrive overnight. When bearish signs are identified it is recommended that a trader / investor takes action by reducing exposure to stocks.

Below are some of the signs of a bear market:

1 Increasing interest rate and economic recession.

2 Market rising when interest rate are rising.

3 Cooperate earnings reports coming in below expectation.

4 Over-valued Price Earnings (PES) market rises too much from normal valuation levels

5 Excessive enthusiasm and ecstasy, especially by professionals which typically occur near the end of a bullish market and the start of a bear market.

6 Low quality and priced stocks start to appreciate in price.

7 Excessive speculation.

8 Unusual trading volume.

9 Investors seeking shelter in blue – chips.

10 Distribution as indicated by high volume on down on up ways.

11 Rallies failing on later volume.

A combination of several factors starts a bull market. These include turn-around in the economy or recovery form recession, reduction in interest rates that eases credit and improves liquidity in the system, increase in inflation, impressive corporate performances and benefits declaration, favourable changes in government policies / regulations, to mention a few.

Generally, factors that effect upward stock price movement tend to initiate a bullish market in stock market. A trader / investor should invest when a bull market is imminent in order to generate huge gains. Therefore, to get the maximum benefit from a bull market, a trader/ investors should analyse and identify the potential leaders, most especially, blue chip companies with sound fundamentals and good prospects because they are usually the first to enjoy the stock rise. These stocks usually have a very strong and positive correlation with the stock market.

Recognising Bullish Signs: The following are some of the probable signs that may usher in a bullish market regime.

1 Decreasing interest rate.

2 High Inflation.

3 Emergence of bargain price because of excessive pessimism.

4 High level of cash in circulation.

5 Few significant price declining.

6 Decreasing flow of primary market activities (new issues can adversely affect the secondary market’s supply / demand balance).

7 More buyers than sellers.

8 Accumulation taking place as indicated by high volume on up days and low volume on down days.

Net Asset per share (NAPS) at above stock market price.