The Stock Market (2)

Bull and Bear Markets
In addition to the three market theories mentioned above, there are other ways of thinking about the market as a whole, that are less theoretical and more grounded in what is actually happening to them. One way is to describe the overall trends in the market, such as by defining them as bearish or bullish. A bull market, loosely defined, is a market in which the major stock indexes have risen by over 20% over a substantial period of time, usually measured in months or years. Bull markets can happen as a result of an economic recovery, an economic boom, or simple investor psychology. The longest and most famous of all bull markets is the one that began in the early 1990s in which the U.S. equity markets grew at their fastest pace ever.

Bear markets are the exact opposite of bull markets: they are markets in which the major indexes have declined by 20% or more over a period of at least two months (a decline that large for any shorter time period is simply called a “correction”, especially if it followed a substantial rise). Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was, of course, the Great Depression of the 1930s.

Seasonal and Time-Related Market Factors
During certain times of the year or certain times of the month, the markets tend to exhibit certain behaviors more often than would be predicted by chance. For example, the early fall, October in particular, has historically been a time when the markets have slumped, although the effect isn't extremely pronounced and there isn't a logical explanation for it. Strong stock performance in January is another example of a seasonal market trend. The so-called "January Effect" occurs because many investors choose to sell some of their stock right before the end of the year in order to claim a capital loss for tax purposes. Once the tax calendar rolls over to a new year on January 1st these same investors quickly reinvest their money in the market, causing stock prices to rise. But although the January effect has been observed numerous times throughout history, it is difficult for investors to profit from it since the market as a whole expects it to happen and therefore adjusts its prices accordingly.
In addition to the January effect and the October slump, there is also something called the “triple witching hour” that occurs four times per year, during the final hour of trading on the third Friday of March, June, September, and December. This is when the expirations on stock index futures, options on the stock index, and options on stock index futures all expire. When this happens, options and futures begin being bought and sold in vast quantities, which causes large fluctuations in the value of their underlying stocks