When working in both the oil and the investment industries, you’re met with something of a ‘perfect storm’ in terms of the sheer quantity of jargon you encounter. The terms ‘bullish’ and ‘bearish’ are investment terms that represent certain trader mind-sets. These are terms used universally within investment, and not just within the oil and gas sector.
Anyone looking to immerse themselves within the world of investment needs to have a comprehensive understanding of the terms involved. If you’re not properly educated, then there’s a very real risk of losing money, and losing it very quickly.
With that in mind, the team here at TriStone Holdings Ltd, a rapidly developing UK oil investment company, wanted to look at these two terms in more detail. Hopefully, this will give you a clearer picture of what can be, at times, a very confusing industry indeed.
A trader acting bullishly is one expecting the market to appreciate or climb in value. The term can be confusing in that it’s used to represent several things. Someone can act bullishly (by going long on a stock) or, alternatively, they can simply display a bullish sentiment or opinion. At its most basic, however, it can be used as a coverall term for an optimistic belief in the overall strength and health of a market, and is a sign of investor confidence.
How Is A Bull Market Defined?
A bullish market can be seen as one which has had a period of stock growth (20% or above) for a sustained period of time. This is usually a period of two or more months.
What Causes A Bull Market?
There are no hard rules as to what causes a bull market, and the volatility of a market is part of where its attraction lies for traders. That risk, after all, presents the opportunity for profit. There are, however, several key indicators that may suggest a bull market is on its way. Looking at market rallies, the market’s volatility index and lower bond yields, are all signs that the market may be on its way to a period of fiscal appreciation.
A bull market is borne out of a period of economic or market uncertainty. The kind of uncertainty that we’ve seen in recent times. As prices and demand increase, so too does investor confidence and something of a self-fulfilling prophecy begins taking place. Demand and confidence fuels further demand and confidence and so the market climbs.
A bear market is the antithesis of a bullish market. It represents pessimism and distrust in the state of a market. The duration of a bear market can vary massively. They range from the relatively short-term (sometimes even only a few weeks) to years.
How Is A Bear Market Defined?
A bear market is defined in the opposite parameters to that of a bull market; a consistent fall in stock and market prices (a minimum reduction of 20%) for at least two months.
What Causes A Bear Market?
Bearish markets are caused by times of economic uncertainty or a slow economy. It can sometimes only take a relatively minimal amount of investor uncertainty to precipitate a further downturn in market belief. In this scenario, an avalanche effect can very quickly be caused. In short, skittish investor behaviour can easily lead to consequently bearish market conditions.
What’s The Current State Of The Market?
Given everything that’s gone on over the past six months, with regards to COVID-19 and its unprecedented industry impacts, you might expect (and reasonably so) that the oil market would still be floundering. However, the indicators across the board display a tentative return to form for the sector, and current state of the market is relatively bullish.
The evidence for this? Well, physical oil trades (where barrels are actually exchanged) have dramatically increased over the past couple of months and demand is steadily rising. When you factor in the geopolitical uncertainty being displayed worldwide, not just from the virus but from key upcoming political events (the upcoming US presidential election, for instance), then this confident market sentiment is heartening and encouraging to see.
A bull market is to a bear market what yin is to yang; an investing dualism that relies on markets acting in ever-changing cycles. The timeframes over which these cycles turn over varies, but fortunately, the oil industry currently seems to be rebounding and demonstrating strong bullish sentiment. After the rough time of it that the industry has had so far this year, this is welcome news, indeed. So, if you’d like to find out more about our oil and gas investment company, about bullish and bearish markets, or about any other part of the industry, then get in touch today! Contact TriStone Holdings Ltd today on 0800 055 7079.