Decoded: What are bull and bear markets, and what is their significance?

 The terms 'bull market' and 'bear market' are often used to define the mood of equity markets. But how are the two stock market terms defined, and what is their significance? Here's an explainer

Bull market and bear market are said to be two opposite phases in a market. In a bull market, stock prices continue to rise over a period of time, whereas in a bear market, prices continue to decline over a period of time.

The market rise can be attributed to several factors such as a positive economic outlook, strong corporate earnings, etc, and vice versa in the case of a declining market.

One of the commonly accepted definitions of bull and bear market phases is that when the stock price rises 20% or more from its recent low or 52-week low, it is said to have entered a bull phase. On the other hand, as and when a stock falls 20% or more from its recent peak or 52-week high, it is said to have entered a bear phase.

Can every 20% rise or fall be defined as a bull or bear phase? The answer is NO! Because in a volatile market a 20% fall after a steep rally can be termed a market correction. And, a 20% rise after a steep fall can be called a pull-back rally.

So, here’s another way of defining or confirming a bull and bear market phase based on market technicals. Chartists call it ‘Golden Cross’ & ‘Death Cross’.

The bull market is said to be confirmed when the 50-day moving average of the stock or index crosses the 200-day moving average. This is also called the Golden Cross.

We get the bear market confirmation when the 50-day moving average of the stock or index falls below the 200-day moving average. This is also called the Death Cross.