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A Dive Into The Term Bullish Market

A Dive Into The Term Bullish Market

When trading, the bullish trend is what characterizes an instrument gaining value, therefore, a bullish market will be seen, through the lens of investors, as a ‘feel-good’ type of move even if these days one can make money by going long or short a particular instrument.

Origins of the term bullish

In financial markets, an instrument can be trading higher, also referred to as a bullish market, or trading lower, what’s understood as a bearish market. The name “bullish” originates from the term “bull”, while the term “bearish” has its origin from the term “bear”.

These borrowed words from the animal kingdom into financial markets have the purpose of describing a certain behavior or attitude in the dynamics of a market. While it’s hard to pinpoint when these descriptions became widely adopted by traders and investors, it is often said that the term "bull" is thought to derive from the way this animal would seize a prey.

The logic of a rising market to be labeled as bullish, therefore, came from the metaphor that when a bull attacks, it would do so by a sudden propeling of the horns upwards into the air, whereas a bear will instead swing down the paws. This behavioral pattern when attack a prey would then be seen as an analogy of how markets tend to move up (bull) and down (bear).

Now, why choose these animals in particular? I will start by noting that there is little historical evidence for why “bull” was chosen other than being a symbolic opposition to the bear. Therefore, let’s start with going back centuries ago to find out how the concept of “bear” was born.

Apparently, it originated with a proverb that would warn to be cautious to “sell the bear’s skin before one has caught the bear.” As the years went by, around the 18th century, the term "to sell bearskin" grew in popularity, specifically those selling it wholesale, known as "bearskin jobbers.” The term then was shortened to “bear”, and speculators started to associate it with the selling of stocks, which became widely popularized during the South Sea Bubble crash of 1720.

From there, the term “bull” simply became a sensible comparison because back in the old days, when financial markets as we know them today were a distant elusion, the comparison between bulls and bears would often come up due to the prevalence of a bloody fight between bulls vs bears, which is why when looking for the antithesis of a bull, it was often compared to a bear.

A reconstruction of a brutal bull and bear fight of the 19th century in California

Do you notice the poor bear chained to a post in the barbaric picture above? Well, it turns out that in medieval times, around the 16th and 17th centuries, one of the favorite pastimes for British imperialists was to watch a bunch of dogs fighting defenseless wild animals. 

The rules were clear, no mercy until all dogs got killed or the bear gives up but preventing the death as they were expensive to import. From there, the twisted creativity of the men in that era led to bulls thrown into the mix, first to fight dogs chained to a pit, only to then popularize the bear vs bullfights.

How does a bullish market form?

There are many acceptable ways to interpret the fluctuations of a certain instrument to determine what’s the current environment at play. Elements such as market technicals, price action, time horizons, individuals perceptions all have a bearing in calling the market dynamics.

However, one of the most widely popular concepts applied by market participants to understand what makes a trend bullish originates from the Dow theory on stock price movement. The theory consists of a technical analysis derived from more than 250 Wall Street Journal editorials written by Charles H. Dow, who was a journalist, founder and first editor of The Wall Street Journal and co-founder of Dow Jones and Company. Even if Dow never publicly endorsed the Dow theory as a trading system, over the years it grew in popularity to become the benchmark for many, including myself. 

The relevant principles of Dow theory to validate a bullish trend must include a market that is in a trending phase, which can be deciphered via the printing of higher highs and higher lows, or seen from a different angle, a market that creates rising bottoms. 

Dow’s observations led him to conclude than when a market is not in a trending mode, it then goes through either an accumulation phase or a distribution phase.

The accumulation phase is a period when investors "in the know" add positions within a limited range in anticipation that the market will ultimately go up, which is the phase that precedes the development of a trend, which gathers pace when you have technically oriented investors participating. 

The market, at some point, will stop creating higher highs and higher lows, usually when the valuations get out of whack, which is precisely the time when is best to start taking some profits off the table, what Dow would call the phase of “distribution.”

Now, another critical factor instrumental to the proper understanding of how to identify a bullish trend according to the Dow theory is not just the technical aspect, but also the analysis of volume in order to confirm price trends. If the price starts to develop a conducive structure of rising bottoms but it happens on low volume, it implies low participation. Dow believed it takes a sequence of high volume candles at the onset of a trend to represent the "true" market view.

The last important consideration when analyzing a bullish trend is the general rule that trends tend to continue until definitive signals exist to prove that they have ended. In other words, a bullish trend should be given the benefit of the doubt during the first setbacks it has. However, this is the most controversial area, as the application of this principle will, therefore, lead to never be in a position to interpret an initial disruption of the bullish trend structure as a new bearish movement being initiated. 

Technical analysis tools and the study of market structures can solve this conundrum, which is what some of the prior work I’ve put together to help you with. The following article is the most relevant to define a mechanical way of interpreting when a bullish trend has come to an end. Read How To Read Market Structures In Forex.

The distinction of a bullish market in forex vs stocks

There is an important difference when it comes to trading Forex vs the stock market, which entails how these instruments get traded. In a stock, the development of a bullish trend makes the instrument gain actual value, denominated in the country's local currency, whereas in the Forex market, since traders and investors are constantly looking to match up two different currencies, which is why we end up trading pairs, the rise of EUR/USD for instance, is a bullish trend in the pair, although it might as well be a bearish trend if trading USD/EUR. Therefore, we don’t really see bullish trends in Forex but the strength or weakness of a currency vs another.

In the case of trading the equity market, since we cannot pick to trade Amazon vs Microsoft as a product, there is an actual intrinsic valuation gain when a stock makes higher highs. It tells us that the aggregate demand toward that instrument exceeds the supply, which is at the heart of what we understand as a market that exhibits a bullish trend. That said, it’s also practical to call a forex pair as developing a bullish or bearish trend, don’t get me wrong, but it’s key to make this subtle distinction to get a sense that bullish trends in forex can become subjective to what and how one trades the currencies of their choice.

Historically popular bullish markets

Let’s start by looking at what’s become the longest bullish trend in the history of US equities. I am referring to the 10-year long run in the S&P 500. Below, you can find an illustration of the S&P 500 on a monthly chart. The index is considered to be the bellwether of US stocks as it includes the tracking of the 500 largest-cap U.S. companies.

As the table below, via CNN, demonstrates, by comparing the current bullish trend in the S&P 500 to other epic trends seen over the last century, the index has surpassed the historical period of the “Roaring 90s” by over a year now (the table was published in April ‘19).

Another vibrant bullish trend still playing out right before our very own eyes is Bitcoin. The tribalism around the technology is ferocious, with facets of the market finding the technology of the digital asset one of the greatest inventions in recent memory in a world that is moving towards the democratization of finances amid failed central bank experiments to alter the normal course of economic cycles, while others still see Bitcoin as a useless endeavour.


What’s hard to dispute is the price action in the BTC/USD monthly chart shown above. If one really wants to make a case to call this technology worthless, they better first wait for price, which is the ultimate barometer to assess total demand and supply, to start reverting by printing lower lows or a structure of falling tops, which would only eventuate of the low from April this year around the 3k gets taken out. That’s when the bull trend may really be threatened.

An instrument that has clearly attracted more than enough attention to make into the hall of fame of historical bullish trends includes the price of Gold. What’s interesting about the precious metal is that after an almost 6-year bull run that ended in 2013 when the red line below was broken, leading to another 6 years of a bearish trend, it was in June this year when buyers finally made a statement of intent by disrupting the market structure.

This declaration of intent to buy gold has finally set out a new bullish journey by confirming the resumption of the bullish trend at a time when ⅓ of the global bond yields are on negative territory, which paradoxically, makes a no yielding asset like gold, best bought at times of uncertainty and money supply growth anticipation, a hybrid yielder by ironically having no yield.

A market that just keeps on going by giving and defying logic is the US 30-year bond, which has been printing rising bottoms ever since 2001, making it one heck of a bullish market. Now, if we were to invert the chart to come up with the yielding of the long-dated 30-year fixed income in the US, it essentially returns a 1 to 1 negative correlation. Because of the duration of the trend, it justifies making it into the echelons of historical bullish trends.

The trend above, which is directly inverse to the US 30y bond, represents the tendency lower (higher in bond pricing) which has been going on for over two decades. This trend clearly communicates the outlook for global growth as well as inflationary pressures has been gradually downgraded over the years, with Central Bank monetary policies since post the global financial crisis failing to provide the boost in price pressures nor economic activity once envisioned.

Bullish markets feel good

When trading, the bullish trend is what characterizes an instrument gaining value, therefore, a bullish market will be seen, through the lens of investors, as a ‘feel-good’ type of move even if these days one can make money by going long or short a particular instrument. The reason a bullish market develops is due to the confidence and optimism that exists about the outlook for a particular asset class, which is reflected in higher levels of price acceptance overtime as part of the market auctions, which creates the sequence of higher highs and higher lows in the chart (rising bottoms). I hope this guide has been of use to learn more about the characteristics and history of bullish markets. 

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