What is a 'Bear Market Rally'

Bear Market Rally refers to a short-term price increase in a stock or market amid a longer-term bear market period. Investors can sometimes misinterpret bear market rallies as markers of the end of a bear market, and so they must be treated with caution.

BREAKING DOWN 'Bear Market Rally'

Bear Market Rally is a buzzword used to describe a period in which prices of stocks temporarily increase during a bear market. This rise in prices is typically a short-lived increase, sometimes lasting anywhere from days to months, amidst an overall long-term downward trend in the market. This phenomenon is sometimes also referred to as a sucker rally.

A bear market is typically indicated by a 20 percent drop in the market, and tends to occur when the market is overvalued. During a bear market, investor confidence trends low, and traders watch eagerly for signs of upward movement in the market.

While speculating on bear market rallies tends to be a high-risk investment strategy, it can be attractive to investors looking to pick up cheap assets at a low price and sell as the rally peaks. This strategy can also be attractive to stockholders looking to mitigate long-term losses and to liquidate assets.

Identifying a Bear Market Rally

Identifying a bear market rally can be challenging, even for experienced traders. In many cases, a bear market rally can last for weeks or months amidst a longer-term downward trend.

Although there are no specific benchmarks for classifying a bear market rally, the term is typically used to describe an increase of 5 percent or more during a bear market, followed by a subsequent, continued downward drop. Notably, the Dow Jones experienced a three-month bear market rally following the Stock Market Crash of 1929, although the bear market continued to decline until bottoming out in 1932.

Longitudinal research has shown that since the beginning of the 20th century, every bear market has spawned at least one rally of 5 percent or more before the market corrects. Two-thirds of the 21 bear markets that occurred between 1901 and 2015 experienced rallies of 10 percent or more. Analysis of the 30-month bear market that began in 2000 and accompanied the Dotcom Crash shows nine rallies of 5 percent or more, four of which exceeded a 10 percent gain.

Because bear markets last for long periods of time, they can exact an emotional drain on investors hoping for a market turnaround. Market advisors warn against emotional responses to market volatility, as investors may panic and make judgment errors regarding their holdings.

  1. Bear Fund

    A bear fund is a mutual fund designed to provide higher returns ...
  2. Bear Market

    A bear market is a market in which securities prices fall and ...
  3. Bear Closing

    Bear closing is purchasing a security, currency or commodity ...
  4. Bear Trap

    A Bear Trap is a false signal in stock market performance suggesting ...
  5. Bear

    An bear is an investor who believes that a particular security ...
  6. Sell-Off

    A sell-off is rapid selling of securities, such as stocks, bonds ...
Related Articles
  1. Investing

    Prospering in the Next Bear Market: Here's How

    Learn how to survive, and even prosper, in a bear market, by considering and putting into action the following four strategies.
  2. Investing

    Don’t Panic When the Next Bear Market Happens

    Take advantage of the next bear market and watch your investment in great companies grow.
  3. Insights

    Digging Deeper Into Bull And Bear Markets

    Discover why it's important to know the characteristics of bull and bear markets, the two types of market conditions.
  4. Investing

    Investotriva: Bear Market

    A financial market with declining asset prices fueled by investors’ pessimism, lack of confidence and negative expectations. While bear markets are partly based on actual investment performance, ...
  5. Investing

    The Wall Street Animal Farm: Getting To Know The Lingo

    Finance professionals speak a different language, but the terms they use are more familiar than you think.
  6. Investing

    5 Stock Corrections Show More Pain Ahead

    The recent history of market corrections suggests that stocks have a longer road downward.
  7. Insights

    What's a Bear Market? InvestoTrivia

    Can you define "bear market"?
  8. Trading

    What is a Bear Call Spread?

    A bear call spread is an option strategy that involves the sale of a call option and simultaneous purchase of a call option on the same underlying asset.
  9. Investing

    Passive Investing Beats Active in a Bear Market

    Think active management can come out ahead of index investing at least during a bear market? A performance review suggests otherwise.
  1. How do you use put options to profit from a bear market?

    Learn how traders use put options in their trading strategies to remain profitable, even in a bear market. Everyday investors ... Read Answer >>
  2. Are We In A Bull Market Or A Bear Market?

    Rising price signifies a bull market while falling price signifies a bear market but the devil is in the details.. Read Answer >>
Trading Center