When to buy stocks either during "Bullish" or "Bearish"

While many investors fall into one of the two categories, and tend to follow their pattern of investing, regardless of actual market conditions, bull and bear markets go in cycles.

Eventually, every bull market phase will peak, and reach a market top or a stock-market bubble. This peak is not usually a dramatic event. People are naturally unaware at the time that the market has reached the highest point it will for a few years.

A decline then follows, beginning a bear market phase. The decline is usually gradual at first and then gains momentum. A market bottom is when the market reaches it's lowest point. This signals the end the downturn, and precedes the beginning of an upward moving trend or new bull market phase.

It is very difficult to identify the bottom, or end of the downturn, while it is occurring. An upturn following a decline is often short-lived, followed by a resumed declining of prices. This can bring losses for an investor who purchases shares during a "false" market bottom, and must then sell them at an even lower price due to insufficient liquidity.

Some people believe that recognizing bull and bear markets is a key way to make money on stock trading and investing. The basic principle for profiting from trading is to buy low and sell high. One way to do this is to buy stocks in a bear market when the prices are low and sell stocks in a bull market when the prices are high. However, recognizing the best times to buy and sell is not that much easy.

It's tough if not impossible to predict consistently when the trends in the market will change. Part of the difficulty is that psychological effects and speculation can sometimes play a large (if not dominant) role in the markets.

Many investors sell in a bear market, either because they become too emotional about trading and don’t want to risk bigger losses, or they don’t have the liquidity to hold onto their investments while awaiting a market reversal.

If a large number of investors are fearful and pessimistic during a bear market, they are likely to contribute to further declines by “panic selling.”

Conversely, the optimism and increased trading that occurs during a bull market serves to boost investor confidence. The increased liquidity results in higher volumes of trading, further raising the prices of stocks.

Ways to Profit in Bull Markets

A bull market occurs when security prices rise faster than the overall average rate. These market types are accompanied by economic growth periods and optimism among investors.

New investors often assume that they need to avoid investing during bear markets, and invest heavily during bull markets. This is not the case. Experienced investors know that you need to be able to invest in any sort of market condition, provided that you do so wisely. Each investor has a different strategy for dealing with a bull market or bearish markets. 

Many investors try to take advantage of bull markets by buying stocks as soon as the market gets bullish, and then starting to sell when prices seem to have reached their peak. The difficulty, of course, is that it is almost impossible to tell when the trend is beginning and when it will peak. In general, investors can take more chances with the market during a bullish phase. Since overall prices will rise, the chances of making a profit are good.

Ways to Profit in Bear Markets

A bear market is defined as a drop of 20% or more in a market average over a one-year period, measured from the closing low to the closing high. Generally, these market types occur during economic recessions or depressions, when pessimism prevails. But amidst the rubble lie opportunities to make money for those who know how to use the right tools.

In bearish market conditions, prices are falling and the possibility of loss is pretty good. What is worse, it is not always possible to tell when bearish conditions will end. Therefore, if you invest during such market conditions, you may have to suffer some losses before bullish times return and you're able to realize a profit. For this reason, many investors decide on short selling or fixed income securities and other more conservative types of investment. 

Defensive stocks are another good option that remain stable during bearish conditions. On the other hand, some investors see bearish market conditions as an ideal time to invest in more stocks. Since many people are selling off their stocks -- including valuable blue-chip stocks -- at low prices, it is possible to set up long-term investments that will prove valuable during bullish times.

While every investor loves to see the upswing in prices during a bull market, the wise investor will be able to handle a bear market as well. Whether you are just beginning to invest or are an experienced investor, learning to deal with various market conditions you neen not panic but decide patiently on investment.

The best way to make money, regardless of the cycles of bull and bear markets, is to create a varied portfolio of investments, and to maintain sufficient liquidity to ride out the tough periods without needing to resort to panic selling.

What is "De-Listing" of Stocks

Delisting is the process by which a company's shares are taken off the stock exchange and trading in its shares stops thereafter. According to a Securities and Exchange Board of India (SEBI) directive, at least 25 per cent equity shares of a listed company must be held by the public. A company that wishes to delist must buy back shares from the public. This buyback is done through an open offer. Promoters must acquire at least 90 per cent stake to delist. The outstanding shares are purchased in the open market at a fixed price.

A delisted stock is no longer traded on a major stock exchange. Corporations sometimes voluntarily withdraw their stocks; in other cases, government regulators force a stock to delist. Regardless of the reason, delisting a stock has consequences and, in some rare cases, benefits.

Delisting can happen on two situations and can be done by the stock exchange or by the company itself. If it is done by the stock exchange then it is called compulsory delisting and if it is done by the company itself it is called voluntary delisting.

In the case of compulsory delisting, the stock exchange might remove the shares of the company if it finds that there is a breach of, on the part of the company, the legal requirements of the stock exchange. This has got its own process.

In the case of voluntary delisting, the company voluntarily would decide to go for delisting and remove its shares off the stock exchange. This is a lengthy process because the interests of the shareholders are involved. The voluntary delisting requires the mandatory meeting of all regulations including approval from board members, providing an exit opportunity for all public shareholders at a price quoted by them, and in-principle approval from the stock exchange among others.

What is "Listing" of Stocks

All exchanges have initial listing requirements that companies must satisfy before they can be listed on a particular exchange. and traded there, but requirements vary by stock exchange:
Since an exchange makes money by charging commissions or fees on trades, most requirements are designed to ensure that a certain amount of trading will occur in the company’s shares. In most cases, larger companies have more trading activity, and so several requirements are related to ensure a minimum size. The most common requirements are a minimum market value, a minimum income and revenue, a minimum number of shares outstanding, and a minimum number of holders of public stock.

Although most stocks listed on an exchange are listed stocks for that exchange, an exchange can list the securities of any other exchange, if it so chooses. To increase pricing competition, the Securities and Exchange Act of 1934 contains a provision referred to as unlisted trading privileges (UTP) that allows any exchange to list any securities listed on any other exchange.

•     Bombay Stock Exchange: Bombay Stock Exchange (BSE) has requirements for a minimum market capitalization of Rs.250 Million and minimum public float equivalent to Rs.100 Million.

•     London Stock Exchange: The main market of the London Stock Exchange has requirements for a minimum market capitalization (£700,000), three years of audited financial statements, minimum public float (25 per cent) and sufficient working capital for at least 12 months from the date of listing.

•     NASDAQ Stock Exchange: To be listed on the NASDAQ a company must have issued at least 1.25 million shares of stock worth at least $70 million and must have earned more than $11 million over the last three years.

•     New York Stock Exchange: To be listed on the New York Stock Exchange (NYSE) a company must have issued at least a million shares of stock worth $100 million and must have earned more than $10 million over

Only members of an exchange may list and execute trades at the exchange. When a retail investor wants to trade an exchange-listed stock, he must go to a broker. If the broker is a member of the exchange where the stock is listed, then she can send her client’s order to a representative of her firm, who will then execute the trade. However, if her firm is not a member, then she will have to send the order to another broker or dealer who is a member of the exchange or to their representative at the exchange.

Buy or sell limit orders are entered into the system and crossed with matching orders. If there are no matching orders, then they are queued, first by price, then by date, as a bid or offer price. The list of all bids and offers constitutes the order book, and the current market quote is the best bid and offer.

Factors Affecting Stocks Prices

Stock market prices are affected by business fundamentals, company and world events, human psychology, and much more.

Stock trading is driven by psychology just as much as it is by business fundamentals, believe it or not. Fear and greed are the two of the strongest human emotions that affect the market. For example, it is easy to get caught in the trap of selling a stock prematurely because it dipped temporarily and fear set in. On the other hand, it is also easy to miss out on a respectable gain because greed was telling you to hold out for more, and then the stock drops back down.

Anyone who is considering investing in the stock market will hopefully be aware that the share price of individual companies can go up and down, as can whole sectors of the market or sometimes the whole market can go down in value. There are a large number of factors that can influence the share price of a company.

One of the main business factors in determining a stock's price is a company’s earnings, including the current earnings and estimated future earnings. News from the company and other national and world events also plays a large role in the direction of the stock market. Some examples of this are oil prices, inflation, and terrorist attacks.

The share price of a company is effectively the limit of what an investor is prepared to pay for it. If investors are confident that the stock of a company is undervalued demand will increase and the price will increase until those investors who own the stock feel the price is worth selling for. At this point supply and demand will balance out and the price will stabilize until something happens to convince investors to increase demand again. The reverse of this is where supply is greater than demand and those wishing to sell have to lower their price until demand increases.

Not all investors study financial reports and some buy shares simply because the prices are increasing and they feel they are bound to increase more. When the prices are increasing like this it is known as a bubble. When the bubble inevitably bursts shares return to a value based on the profitability of the company. A large bubble can affect whole sectors or even the whole market in an extreme case. The reverse of a bubble where investors are selling and prices drop below their logical price is known as a crash.

The individual fortunes of a company are mainly measured in terms of the profit it makes and the possibility for future profits. Listed companies have to provide reports of their profits publicly and it is common to see big moves in prices if the reported profits are different to those expected. Other factors that can affect the price include key directors joining or leaving the company, contacts being won or lost and rumors of a takeover or merger.

As well as the fortunes of the individual company, the fortunes of the sector as a whole are likely to affect the price. Investors and the financial press group companies into sectors such as construction or aviation and a change in the demand for their sector or the raw materials and commodities they rely on can move the prices of all the companies in the sector.

Wider economic activity can have an effect on the share price of a company even when it is not directly affected. In a recession when people have less money to spend and are concerned about the risks of investing in the markets the demand for the stock of a company can be reduced which will push the price down. Large nationwide and global events can also cause a similar effect for example when the New York Stock Exchange opened for the first time after 9/11 the whole market suffered its worst ever loss in a day.

Natural disasters can also cause drops in share prices as concerns over likely price increases in commodity and raw materials. Government policy and perceived policy changes including upcoming elections can also affect prices where conditions for business are likely to change.

Apart from those discussed above, the following one’s too are also factors for price variations, such as,
 
Bad News or "Good" Bad News?

Company news and performance

Here are some company-specific factors that can affect the share price:

• news releases on earnings and profits, and future estimated earnings
• announcement of dividends
• introduction of a new product or a product recall
• securing a new large contract
• employee layoffs
• anticipated takeover or merger
• a change of management
• accounting errors or scandals

Industry performance

Often, the stock price of the companies in the same industry will move in tandem with each other. This is because market conditions generally affect the companies in the same industry the same way. But sometimes, the stock price of a company will benefit from a piece of bad news for its competitor if the companies are competing for the same market.
 
Market Scandals

Traders tend to frown upon corruption in the stock market. Mutual fund scandals that have occurred in the past few years and corporate corruption such as Enron are two such examples. If people cannot trust the stock market, why would they invest their hard-earned money in it? In these situations it is harder for the market to go up because there is a lower demand for stocks.

Investor sentiment

Investor sentiment or confidence can cause the market to go up or down, which can cause stock prices to rise or fall. The general direction that the stock market takes can affect the value of a stock:
 

• bull market – a strong stock market where stock prices are rising and investor confidence is growing. It's often tied to economic recovery or an economic boom, as well as investor optimism.
• bear market – a weak market where stock prices are falling and investor confidence is fading. It often happens when an economy is in recession and unemployment is high, with rising prices.

  Economic and political shocks

Changes around the world can affect both the economy and stock prices. For example, a rise in energy costs can lead to lower sales, lower profits and lower stock prices. An act of terrorism can also lead to a downturn in economic activity and a fall in stock prices.
Changes in economic policy

If a new government comes into power, it may decide to make new policies. Sometimes these changes can be seen as good for business, and sometimes not. They may lead to changes in inflation and interest rates, which in turn may affect stock prices.
 
Interest rates

The Reserve Bank of India can raise or lower interest rates to stabilize or stimulate the Indian economy. This is known as monetary policy. If a company borrows money to expand and improve its business, higher interest rates will affect the cost of its debt. This can reduce company profits and the dividends it pays shareholders. As a result, its share price may drop. And, in times of higher interest rates, investments that pay interest tend to be more attractive to investors than stocks.
 
Economic outlook

If it looks like the economy is going to expand, stock prices may rise. Investors may buy more stocks thinking they will see future profits and higher stock prices. If the economic outlook is uncertain, investors may reduce their buying or start selling.
 
Inflation

Inflation means higher consumer prices. This often slows sales and reduces profits. Higher prices will also often lead to higher interest rates. For example, the Bank of Canada may raise interest rates to slow down inflation. These changes will tend to bring down stock prices. Commodities however, may do better with inflation, so their prices may rise.

Watch this video to learn more about inflation.

Deflation

Falling prices tend to mean lower profits for companies and decreased economic activity. Stock prices may go down, and investors may start selling their shares and move to fixed-income investments like bonds. Interest rates may be lowered to encourage people to borrow more. The goal is increased spending and economic activity. The Great Depression (1929-1939) was one of the worst periods of deflation ever.
 
Analyst Recommendations

Many traders rely on experts' opinions about companies and future stock prices. Are they always correct? Of course not. Nobody can predict what will happen in the future. They can, however, make educated guesses based on past performances and future prospects for the companies and industries they follow.

Round Numbers

Traders often like nice round numbers for their perceived stock price, such as $10.00 or $35.00. It is common for prices to settle near these round numbers, at least briefly. Also, many traders place automatic buy or sell orders right near these round numbers, causing the stock price to become slightly erratic when it first reaches that target.

Technical Analysis

One of the most popular methods for helping predict a stock's price, at least in the short term, is called Technical Analysis. This method involves looking for patterns or indicators in stock prices, volumes, moving averages, and many others, over time. Obviously nobody can predict the future but this method can be effective in many cases because human beings are somewhat predictable. For example, when people see a stock start falling dramatically they often panic and sell their positions without investigating what caused the fall. This causes even more people to sell their shares and this often leads to an "overshoot" of the stock price. If you believe the price went too far down you can try to buy it at the bottom and hope that it will come back up to a more reasonable level.

Another common example involves Moving Averages. Many traders like to chart the 50-day and 200-day Moving Averages of their stock prices along with the prices themselves. When they see the current price cross over one of these Moving Averages on the charts it can be an indicator of a change in a long-term trend and it may be time to buy (or sell) the stock.
 
Layoffs

This is usually good for the company and its stock price because expenses will be reduced significantly and quickly. This should help increase earnings right away. It is not always a major warning sign; it could just be a reaction to a slower economy. It is one of the quickest ways a company can cut expenses if sales have not been meeting expectations.
 
Store Closings

This event often causes the stock price to go up for the same reasons as layoffs. However, this is not always the case. Closing stores actually requires a lot of money, and the positive effects of it do not take place immediately. This could be a sign that the company is truly in trouble at the moment. They probably have lower sales and higher expenses than they want, possibly due to a slowdown in the industry or the overall economy. The good news is that their management is being pro-active about maintaining profitability. Unfortunately, the stock price may go down for the next few months.

Firing of CEO or Company Official(s)

This may sound very negative at first, but it does show that the company’s board of directors was bold enough to take drastic actions to help the company in the long run. The stock price could go up or down after this announcement, depending on the situation. In some cases this event could be a sign of corruption that reaches beyond these individuals and there could be more negative announcements to come.

Every analyst and trader has a different perception of what that stock price should be now and where it might be in the future, and trading decisions are made accordingly.

Why do stock prices move Up and Down

Every day, without fail, stocks rise and fall. The main reason for movements in a company’s stock price is due to supply and demand. Stocks go up because more people want to buy than sell. When this happens they begin to bid higher prices than the stock has been currently trading. On the other side of the same coin, stocks go down because more people want to sell than buy. In order to quickly sell their shares, they are willing to accept a lower price.

While these movements may seem mysterious, they often spring from concrete causes. Investors savvy enough to spot these driving forces may also suss out excellent opportunities to profit.

Basically, every stock trades at the latest price at which someone was willing to sell it, and at which someone else was willing to buy it. That willingness fluctuates depending on the people involved, the circumstances around the company, and even basic human psychology.

The most obvious reason that a stock goes up or down has to do with how much money the corporation makes. If a company is making money or might make money in the future, more people will buy shares of its stock. The name of the game is supply and demand. Because of supply and demand, when there are more buyers than sellers, the stock price will go up. If there are more sellers than buyers, the stock price will go down.

Often stocks go up or down based primarily on people's perceptions. This is why so many corporations spend a lot of money on advertising and on actions that will bring them positive publicity. This is also why some shareholders send out emails to strangers or post messages in Internet chat rooms to try to convince people to buy more stock.

Stocks also go up or down depending on the mood of the country and the state of the economy. Once again, a lot is based on perception. If people believe that economic conditions are improving and the country is on the right track, they will be more inclined to invest in the stock market. 

A share price goes up when…

• A company is making huge profits.
• Lots of people want to buy the shares to reap the rewards of the profits.
• Not many people want to sell the shares.
• There are not many shares left.

A share price goes down when…

• A company makes some losses.
• Lots of people want to sell the shares.
• Not many people want to buy the shares.
• There are too many shares.

However there are several external factors too that affect a company’s stock price. One factor that we have all witnessed recently is the recession. Others include inflation rates, interest rates, job cuts, natural disasters, company mergers, changes in company management etc……