What Starts a Bull Market?
The following describes how bull markets come into being: To start the bull market process, an Index (or the stocks it represents) starts to fall in price day after day, week after week, punctuated with small up-moves with lower tops, as seen in a bear market. There will be a level reached at some time where weak holders will start to panic (known as ‘the herd’) and will tend to sell their stock holdings all at the same time. These weak holders will not be able to stand any more losses, and will be fearful of even further losses (the news will be bad). As these traders sell, professional money will step in and start buying, because in their view, the stock can now be sold at a higher price at some point in the future. The panic selling has also given professional money the opportunity to buy without
putting the price up against their own buying (accumulation).
This process is going on all the time, creating either a small move or a large move. Any move that does start is in direct proportion to the amount of shares which have changed hands.
To create a major bull market you need to see the extremes of this process at work, which is known as a selling climax. This phenomenon occurs when there is a major transfer of stock from weak holders. Weak holders are traders who have been locked-in at higher prices, suffering the fear and pressure of losses, which cannot be tolerated any longer. These weak holders gladly sell to the strong holders.
This then gives the strong holders, who are on the right side of the market, the opportunity to buy and to cover their short positions without putting the price up against their own buying.
Accumulation is the term used to show that large interests are actively buying stock(s). The traders in most accumulation campaigns are usually not interested in the company or its directors. They will have already done all their homework on the targeted company. Their only interest is in making a profit from a price difference.
A very good way to absorb a large capital base is to target a fundamentally good quality company stock that has seen a substantial drop in price. Buying takes place, but the trick is to keep your buying as quiet as possible and never allow your buying to raise the price of the stock very far. These buy orders will vary under different market conditions. As time passes, larger and larger amounts of stock are transferred to the buyers (strong holders). As this transfer takes place, the imbalance of the supply and demand becomes greater. Once the buyers have removed the restraints, a bull move will occur.
Many professionals operate in so-called 'rings' for group strength. Huge amounts of money are invested in the accumulation (buying) of targeted stocks by large concerns, and even individual traders acting for their own, or unknown accounts. Many outside traders may have noticed the buying and will start buying on the principle "if it is good enough for them, it is good enough for me”. This secondary buying is liable to create resistance at higher prices, as these outsiders take profits before the bull market has had time to run its full course.
Professional traders understand human psychology (so do you, but you may have failed to link it with the stock market). They know that most stockholders who take an active interest in the price of their stock can be shaken out of their holdings one way or another. Even the passage of time will tend to shake traders out of the market, as they wait month after month in anticipation of a recovery. Even if these holders have a potential 'winner', they start to think this stock is never going to recover now. Every time any up-move does start, it appears to drop sharply again. The syndicate operators will be hitting the stock hard and fast with sell orders to knock the price back down again to enable even more buying – this frantic selling of large blocks of stock is what causes the price to drop. They might appear to be selling, but the process results in more buying than selling at the end of the day. If weak holders stick this phase out, they still have to face the shake-out on bad news, usually seen just before the actual bull move.
The base cause for any up-move is the accumulation of the underlying stock by large money interests.
Frequently these money interests act in groups or syndicates, sometimes known as ‘The Crowd’. The
market-makers or specialists must also be fully aware of what is going on! Market-makers and specialists trade their own accounts and very actively too, so they can be expected to be looking very closely at these trading syndicates.
The Forces of Supply & Demand Move the Markets
We are told that all markets move on supply and demand. This makes the market easy to understand! If there is more buying than selling, the market is going to go up, if there is more selling than buying the market is going to fall – it is all so easy to understand! No, it is not quite that simple! The underlying principle is, of course, correct, but it does not work exactly like it sounds it should be working. A market moves up, not necessarily because there is more buying than selling, but because there are no substantial bouts of selling (profit-taking) to stop the up-move. Major buying (demand) has already taken place at a lower price level during the accumulation phase. Until substantial selling starts to take place, the trend of the market will still be up.
A bear market takes place, not because there is necessarily more selling than buying, but because there is insufficient buying (support) from the major players to stop the down-move. Selling has already taken place during the distribution phase at a higher price level and until you see buying coming into the market, the market will remain bearish. There is little or no support in a bear market (buying), so prices fall. Herein lies the reason why markets fall much faster than they rise.
Once a rally does start, price levels will be reached when other professionals who are not in "the crowd" may start to take profits. Supply from old trading areas may also appear on the scene. If the syndicate still owns most of the stock and are expecting still higher prices, they will have to absorb this selling; however they will be reluctant to just carry on up, until they are sure all the supply at that price level has disappeared. This is why you frequently see resting periods in the Index while they assess the current market conditions.
The Selling Climax and Professional Support
A selling climax is indicated by ultra-wide spreads down, with exceptionally high volume, usually closing on or near the highs of the day. Add more bullishness if the news is bad!
PROFESSIONAL SUPPORT (OR REVERSE UP-THRUST)
This action is very similar to a selling climax but is less intense – the reverse up-thrust can be thought of as a mini 'Selling Climax’. There will still be a wide spread down-day, often driving down into recent or new low ground, and then closing at or near the highs, on high volume. Note, this indicator is more reliable when the day is gapped down and the following day is gapped up – add more bullishness if the news is bad. Any down-day on low volume (no selling) after this event, especially if it closes on the high of the day, is a strong indication of market strength.
This professional buying (absorption of the supply) will usually stop the down-move. The more liquid the market, the more buying will be required to stop the down-move. The four major currencies are good examples of liquid markets. Here substantial volume is usually required over several days to stop a downmove.
Without accumulation, every rally is doomed to failure. Without distribution, every down-move is also doomed to failure. Every move is directly linked to the amount of shares that have changed hands, which creates an imbalance of supply and demand, tipping the move one way or the other.
There is a strong body of evidence to show that these processes are at work and nowhere more so than in the Japanese stock market. We are told constantly that the wealth of the world is moving to the Far East.
The country that immediately comes to mind is Japan. We are also told that the balance of trade is
constantly in Japan's favour. Nevertheless, looking at the Nikkei Index we see that it is constantly making new lows! How can this be? How can the Index that represents potentially the richest country in the world be making new lows, while in far weaker economies the stock markets are making new highs?Well, at least this demonstrates that the economy is not necessarily the powerhouse that moves a nation's stock market index. Something else must be at work. This is a great mystery to most people, as they will naturally think that a very strong economy and many successful companies within Japan will automatically create a strong stock market, not a weak one.
1,700 Japanese companies all held their annual general meetings on the same day by mutual agreement during 1991 to cut down on the attendance at each meeting! The uninformed public had been blaming individual companies for the decline in their stock prices and, apparently, Japanese gangsters were demanding their money back as well. These gangsters are uninformed like the public, as to the real workings of the stock market. Company directors usually have very little to do with their own stock's performance. They are experts on running the company, not on their stock's performance, and are frequently just as surprised as anyone else is by the action of their own stock.
The following describes how bull markets come into being: To start the bull market process, an Index (or the stocks it represents) starts to fall in price day after day, week after week, punctuated with small up-moves with lower tops, as seen in a bear market. There will be a level reached at some time where weak holders will start to panic (known as ‘the herd’) and will tend to sell their stock holdings all at the same time. These weak holders will not be able to stand any more losses, and will be fearful of even further losses (the news will be bad). As these traders sell, professional money will step in and start buying, because in their view, the stock can now be sold at a higher price at some point in the future. The panic selling has also given professional money the opportunity to buy without
putting the price up against their own buying (accumulation).
This process is going on all the time, creating either a small move or a large move. Any move that does start is in direct proportion to the amount of shares which have changed hands.
To create a major bull market you need to see the extremes of this process at work, which is known as a selling climax. This phenomenon occurs when there is a major transfer of stock from weak holders. Weak holders are traders who have been locked-in at higher prices, suffering the fear and pressure of losses, which cannot be tolerated any longer. These weak holders gladly sell to the strong holders.
This then gives the strong holders, who are on the right side of the market, the opportunity to buy and to cover their short positions without putting the price up against their own buying.
Accumulation is the term used to show that large interests are actively buying stock(s). The traders in most accumulation campaigns are usually not interested in the company or its directors. They will have already done all their homework on the targeted company. Their only interest is in making a profit from a price difference.
A very good way to absorb a large capital base is to target a fundamentally good quality company stock that has seen a substantial drop in price. Buying takes place, but the trick is to keep your buying as quiet as possible and never allow your buying to raise the price of the stock very far. These buy orders will vary under different market conditions. As time passes, larger and larger amounts of stock are transferred to the buyers (strong holders). As this transfer takes place, the imbalance of the supply and demand becomes greater. Once the buyers have removed the restraints, a bull move will occur.
Many professionals operate in so-called 'rings' for group strength. Huge amounts of money are invested in the accumulation (buying) of targeted stocks by large concerns, and even individual traders acting for their own, or unknown accounts. Many outside traders may have noticed the buying and will start buying on the principle "if it is good enough for them, it is good enough for me”. This secondary buying is liable to create resistance at higher prices, as these outsiders take profits before the bull market has had time to run its full course.
Professional traders understand human psychology (so do you, but you may have failed to link it with the stock market). They know that most stockholders who take an active interest in the price of their stock can be shaken out of their holdings one way or another. Even the passage of time will tend to shake traders out of the market, as they wait month after month in anticipation of a recovery. Even if these holders have a potential 'winner', they start to think this stock is never going to recover now. Every time any up-move does start, it appears to drop sharply again. The syndicate operators will be hitting the stock hard and fast with sell orders to knock the price back down again to enable even more buying – this frantic selling of large blocks of stock is what causes the price to drop. They might appear to be selling, but the process results in more buying than selling at the end of the day. If weak holders stick this phase out, they still have to face the shake-out on bad news, usually seen just before the actual bull move.
The base cause for any up-move is the accumulation of the underlying stock by large money interests.
Frequently these money interests act in groups or syndicates, sometimes known as ‘The Crowd’. The
market-makers or specialists must also be fully aware of what is going on! Market-makers and specialists trade their own accounts and very actively too, so they can be expected to be looking very closely at these trading syndicates.
The Forces of Supply & Demand Move the Markets
We are told that all markets move on supply and demand. This makes the market easy to understand! If there is more buying than selling, the market is going to go up, if there is more selling than buying the market is going to fall – it is all so easy to understand! No, it is not quite that simple! The underlying principle is, of course, correct, but it does not work exactly like it sounds it should be working. A market moves up, not necessarily because there is more buying than selling, but because there are no substantial bouts of selling (profit-taking) to stop the up-move. Major buying (demand) has already taken place at a lower price level during the accumulation phase. Until substantial selling starts to take place, the trend of the market will still be up.
A bear market takes place, not because there is necessarily more selling than buying, but because there is insufficient buying (support) from the major players to stop the down-move. Selling has already taken place during the distribution phase at a higher price level and until you see buying coming into the market, the market will remain bearish. There is little or no support in a bear market (buying), so prices fall. Herein lies the reason why markets fall much faster than they rise.
Once a rally does start, price levels will be reached when other professionals who are not in "the crowd" may start to take profits. Supply from old trading areas may also appear on the scene. If the syndicate still owns most of the stock and are expecting still higher prices, they will have to absorb this selling; however they will be reluctant to just carry on up, until they are sure all the supply at that price level has disappeared. This is why you frequently see resting periods in the Index while they assess the current market conditions.
The Selling Climax and Professional Support
A selling climax is indicated by ultra-wide spreads down, with exceptionally high volume, usually closing on or near the highs of the day. Add more bullishness if the news is bad!
PROFESSIONAL SUPPORT (OR REVERSE UP-THRUST)
This action is very similar to a selling climax but is less intense – the reverse up-thrust can be thought of as a mini 'Selling Climax’. There will still be a wide spread down-day, often driving down into recent or new low ground, and then closing at or near the highs, on high volume. Note, this indicator is more reliable when the day is gapped down and the following day is gapped up – add more bullishness if the news is bad. Any down-day on low volume (no selling) after this event, especially if it closes on the high of the day, is a strong indication of market strength.
This professional buying (absorption of the supply) will usually stop the down-move. The more liquid the market, the more buying will be required to stop the down-move. The four major currencies are good examples of liquid markets. Here substantial volume is usually required over several days to stop a downmove.
Without accumulation, every rally is doomed to failure. Without distribution, every down-move is also doomed to failure. Every move is directly linked to the amount of shares that have changed hands, which creates an imbalance of supply and demand, tipping the move one way or the other.
There is a strong body of evidence to show that these processes are at work and nowhere more so than in the Japanese stock market. We are told constantly that the wealth of the world is moving to the Far East.
The country that immediately comes to mind is Japan. We are also told that the balance of trade is
constantly in Japan's favour. Nevertheless, looking at the Nikkei Index we see that it is constantly making new lows! How can this be? How can the Index that represents potentially the richest country in the world be making new lows, while in far weaker economies the stock markets are making new highs?Well, at least this demonstrates that the economy is not necessarily the powerhouse that moves a nation's stock market index. Something else must be at work. This is a great mystery to most people, as they will naturally think that a very strong economy and many successful companies within Japan will automatically create a strong stock market, not a weak one.
1,700 Japanese companies all held their annual general meetings on the same day by mutual agreement during 1991 to cut down on the attendance at each meeting! The uninformed public had been blaming individual companies for the decline in their stock prices and, apparently, Japanese gangsters were demanding their money back as well. These gangsters are uninformed like the public, as to the real workings of the stock market. Company directors usually have very little to do with their own stock's performance. They are experts on running the company, not on their stock's performance, and are frequently just as surprised as anyone else is by the action of their own stock.
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