What is a 'Rally'?

A rally is a period of sustained increases in the prices of stocks, bonds or indexes. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally, respectively. However, a rally will typically follow a period of flat or declining prices.

BREAKING DOWN 'Rally'

A rally is caused by a significant increase in demand resulting from a large influx of investment capital into the market. This leads to the bidding up of prices. The length or magnitude of a rally depends on the depth of buyers along with the amount of selling pressure they face. For example, if there is a large pool of buyers but few investors willing to sell, there is likely to be a large rally. If, however, the same large pool of buyers is matched by a similar amount of sellers, the rally is likely to be short and the price movement minimal.

Identifying a Rally

The term “rally” is used loosely when referring to upward swings in markets. The duration of a rally is what varies from one extreme to another, and is relative depending on the time frame used when analyzing markets. A rally to a day trader may be the first 30 minutes of the trading day in which price swings continue to reach new highs, whereas a portfolio manager for a large retirement fund looking at a much larger picture may perceive the last calendar quarter as a rally, even if the previous year was a bear market.

A rally can be confirmed by various technical indicators. Oscillators immediately begin to assume overbought conditions. Trend indicators start shifting to uptrend indications. Price action begins to display higher highs with strong volume and higher lows with weak volume. Price resistance levels are approached and broken through.

Underlying Causes of Rallies

The causes of rallies vary. Short-term rallies can result from news stories or events that create a short-term imbalance in supply and demand. Sizeable buying activity in a particular stock or sector by a large fund, or an introduction of a new product by a popular brand, can have a similar effect that results in a short-term rally. For example, almost every time Apple Inc. has launched a new iPhone, its stock has rallied by an average of 23 percent over the next six months.

Longer term rallies are typically the outcome of events with a longer-term impact such as changes in government tax or fiscal policy, business regulation or interest rates. Economic data announcements that signal positive changes in business and economic cycles also have a longer lasting impact that may cause shifts in investment capital from one sector to another. For example, a significant lowering of interest rates may cause investors to shift from fixed income instruments to equities. This would create a rally in the equities markets.

RELATED TERMS
  1. Relief Rally

    A relief rally is an increase in market prices that occurs because ...
  2. Bear Market

    A bear market is a market in which securities prices fall and ...
  3. Tortoise Rally

    A slow-and-steady appreciation of financial market prices over ...
  4. Bull

    A bull is an investor who invests in a security expecting that ...
  5. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
  6. Bull Position

    A long position in a financial security, such as a stock in the ...
Related Articles
  1. Trading

    Commodity ETFs Near Buy Levels (JO, WEAT)

    These commodity ETFs have rallied and are pulling back, presenting buying opportunities right now.
  2. Trading

    ETF Trading Opportunities to Watch Closely

    These ETFs are all making significant trending moves, or about to start a new trending wave. Trading opportunities are underway or will arise shortly.
  3. Investing

    Is Gold Blazing a Comeback Trail? Prices Rally to Start 2018

    Gold prices kick-started 2018 with a huge rally, but can it continue?
  4. Trading

    Gold and Silver Turn Bullish Again

    Gold and Silver are making moves to the upside after an extended pullback period.
  5. Trading

    Three Momentum Stocks Breaking Out

    These stocks have been rallying aggressively, but after a brief pullback look poised to head even higher.
  6. Trading

    Gold, Silver and Oil Heading Into Resistance

    Gold, silver and oil have bounced recently, but technicals indicate that prices could head lower again.
  7. Trading

    Bullish Divergences Could Send These Stocks Higher

    These S&P 500 stocks show bullish volume divergences but mixed price action, predicting catch-up rallies in coming months.
  8. Investing

    4 Stocks to Play Oil's Bounce

    Here are four stocks in the rebounding oil & gas drilling and exploration industry that you should get while they're hot.
  9. Trading

    Short-term ETF Buying Opportunities (EEM, EFA)

    These ETFs have pulled back to short-term support levels, indicating a potential buying opportunity.
RELATED FAQS
  1. What indicators help define a bull market?

    Learn about a number of various technical indicators traders and analysts use to define and confirm the existence of a bull ... Read Answer >>
  2. How are share prices set?

    Different factors determine an initial share price, from an investment bank's valuation during an IPO to supply and demand ... Read Answer >>
  3. What are common trading strategies used in a bull market?

    Discover four commonly used trading strategies by investors and analysts to make profits from a prolonged bull market, including ... Read Answer >>
  4. How does a bull market in stocks affect the bond market?

    Take a deeper look at the relationship between the bond market and equities, and see what might happen to bonds during the ... Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center