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. Sucker Rally

    A temporary rise in a specific stock or the market as a whole. ...
  2. Bull Market

    A bull market is a financial market of a group of securities ...
  3. Bear Trap

    A false signal that the rising trend of a stock or index has ...
  4. Bull

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

    The number of shares or contracts traded in a security or an ...
  6. Bear Fund

    A mutual fund designed to provide higher returns when the market ...
Related Articles
  1. Trading

    Commodity Stocks in Play Now (AKS, WLL)

    These stocks have experienced a sizable pullback after a big rally, presenting a potential major buying opportunity.
  2. Trading

    Commodity ETFs Near Buy Levels (JO, WEAT)

    These commodity ETFs have rallied and are pulling back, presenting buying opportunities right now.
  3. 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.
  4. Trading

    Agriculture ETFs Facing Headwinds Despite Bounce

    Despite a bounce in the agricultural ETFs over the past few weeks, technical evidence suggests lower prices to come.
  5. Trading

    Is Now the Time to Buy Gold and Silver ETFs?

    Gold and silver stocks have pulled back recently after a move to upside. Is it time to buy? Here's the outlook.
  6. Insights

    Digging Deeper Into Bull And Bear Markets

    Discover why it's important to know the characteristics of the two types of market conditions.
  7. Trading

    What to Do With the Dow's Underperformers

    These three stocks have underperformed the S&P 500 drastically over the last year. Here's their outlook going forward.
  8. Trading

    Gold, Silver and Oil Heading Into Resistance

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

    3 Under-the-radar Momentum Plays

    A basket of small cap stocks are charging higher in 2017 momentum rallies that could eventually end at much higher price levels. (AOII,WTW,CALA)
  10. Trading

    These Stocks Are Still Sell Candidates

    Despite a recent rally, these stocks are still in downtrends and do not yet warrant buying.
RELATED FAQS
  1. What are the signs of a bear market rally?

    Read about some of the signs of a bear market rally, an unpredictable bull movement that takes place in the middle of a stronger ... 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 the safest investments during a bear market?

    Learn what investments carry the least amount of risk during a bear market and how they can be used to hedge against falling ... Read Answer >>
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center