- Accumulation Phase. In the first phase of a bull market, there is accumulation of stocks or buying over a period of time, during which very knowledgeable investors with good foresight about a coming business upturn, begin buying stocks offered by pessimistic sellers who want out. This group of knowledgeable buyers will also start to pay higher prices as the willing sellers exit. The economy and business conditions are still often quite negative. The public, and this is mirrored by the financial press, is quite disinterested in the market, to the point of where owning stocks is very unattractive to them and they are out of the market. The people who lost money in the last bear market are actively disgusted with the market. Market activity is modest at best but is picking up a bit on rallies, but this is mostly only noticed, if at all, by professional market participants.
- A Steady Climb. The second phase is one of a fairly steady advance, but one that is not dramatic. There is a pickup in business and encouraging economic reports as an improving economy leads to a pickup in corporate earnings. This phase is also a period where money can be made relatively safely, as technical indicators turn positive and there is an absence of volatile trading swings.
- Main Street Adopts Wall Street. The third phase, which at one and the same time can be both highly profitable and ultimately risky, is marked by heavy public interest and participation in the market. The economic news is good during this period, and suddenly, front pages of magazines have articles heralding the new bull market. The new stock issue market gets going as the public now has an appetite for new companies. This is the phase where you will hear banter at parties about the stock market, how well so-and-so is doing in stocks and where, today, market-related Internet chat rooms are quite active. Price advances can be huge and volume is equally large. The more speculative stocks continue to advance but it is here that the blue chip stocks of the most established big-name companies start to lag the overall market. Some sharp downswings occur among stocks that fall out of favor. Speculation is intense as seen in increased option activity, the first-day closes of hot new issues and in the level of buying stocks on margin. The end of this phase is always the same, varying degrees of collapse. This can come after a year or two or even after several years have passed from the beginning phase.
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