StockCharts : The Three Stages of Primary Bull Markets and Bear Markets

Bull Markets

Primary Bull Market - Stage 1 - Accumulation
In the first stage of a bull market, stocks begin to find a bottom andquietly firm up. When the market starts to rise, there is widespreaddisbelief that a bull market has begun.

Primary Bull Market - Stage 2 - Big Move
The second stage of a primary bull market is usually the longest, andsees the largest advance in prices. It is a period marked by improvingbusiness conditions and increased valuations in stocks. Earnings beginto rise again and confidence starts to mend. This is considered theeasiest stage to make money as participation is broad and the trendfollowers begin to participate.

Primary Bull Market - Stage 3 - Excess
The third stage of a primary bull market is marked by excessivespeculation and the appearance of inflationary pressures.

Bear Markets

Primary Bear Market - Stage 1 - Distribution
Just as accumulation is the hallmark of the first stage of a primarybull market, distribution marks the beginning of a bear market. As the"smart money" begins to realize that business conditions are not quiteas good as once thought, they start to sell stocks. The public isstill involved in the market at this stage and become willing buyers.There is little in the headlines to indicate a bear market is at handand general business conditions remain good. However, stocks begin tolose a bit of their luster and the decline begins to take hold.

Primary Bear Market - Stage 2 - Big Move
As with the primary bull market, stage two of a primary bear marketprovides the largest move. This is when the trend has been identifiedas down and business conditions begin to deteriorate. Earningsestimates are reduced, shortfalls occur, profit margins shrink andrevenues fall. As business conditions worsen, the sell-off continues.

Primary Bear Market - Stage 3 - Despair
At the top of a primary bull market, hope springs eternal and excessis the order of the day. By the final stage of a bear market, all hopeis lost and stocks are frowned upon. Valuations are low, but theselling continues as participants seek to sell no matter what. Thenews from corporate America is bad, the economic outlook bleak and nota buyer is to be found. The market will continue to decline until allthe bad news is fully priced into stocks.

Once stocks fully reflectthe worst possible outcome, the cycle begins again.

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