Secondary market trends

Correction

A market correction is a sometimes defined as a drop of at least 10%, but not more than 20% (25% on intraday trading).

Major disasters or negative geopolitical events can spark a correction. One example is the performance of the stock markets just before and after the September 11, 2001 attacks. On September 7, 2001, the Dow fell 234.99 points to 9,605.85, thoroughly pushing the Dow into a correction. On September 17, 2001, the first day of trading after the attacks, the Dow Jones Industrial Average plunged 684.81 points to 8,920.70. That loss officially pushed the Dow, not just even further into a correction, but a bear market. (Although unless investors had prior knowledge of the events of September 11, 2001, it would be impossible for the attacks to have had an effect on the markets ahead of time.)

Because of depressed prices and valuation, market corrections can be a good opportunity for value-strategy investors. If one buys stocks when everyone else is selling, the prices fall and therefore the P/E ratio goes down. In addition, one is able to purchase undervalued stocks with a highly probable upside potential.

Bear market rally

A bear market rally is sometimes defined as a rise of at least 10%, but no more than 20%.

Notable bear market rallies occurred in the Dow Jones index after the 1929 stock market crash leading up to the market bottom in 1932, as well as throughout the late 1960s and early 1970s. The Japanese Nikkei stock average has been typified by a number of bear market rallies since the late 1980s while experiencing on overall downward trend.

Secular market trends

A secular market trend is a long-term trend that lasts 5 to 20 years, and consists of sequential primary trends. In a secular bull market the bear markets are smaller than the bull markets. Typically, each bear market does not wipe out the gains of the previous bull market, and the next bull market makes up the losses of the bear market. Conversely, in a secular bear market, the bull markets are smaller than the bear markets and do not wipe out the losses of the previous bear market.

An example of a secular bear market was seen in gold over the period between January 1980 to June 1999, over which the gold price fell from a high of $850/oz to a low of $253/oz, which formed part of the Great Commodities Depression. Conversely, the S&P 500 experienced a secular bull market over a similar time period.

These secular bull and bear market trends are also termed "supercycles". "Grand supercycles" of 50 to 300 years have also been proposed by Nikolai Kondratiev and Ralph Nelson Elliott.

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