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How to determine Bull Market with Dow Theory?

Posted By On 8/12/2008 09:42:00 PM Under
Bull market as per DOW theory involves three phases and same is listed below:

1. Primary bull market involves improved business conditions which means more demand for stocks. Similarily primary bear market means that market conditions is in down trend and thus demand for stocks is poor. However one must remember that during any cycle a counter trend may be in offing for a limited period.

2. Bull market encompasses 3 stages which mainly involves accumulation of stocks by smart operators in transition phase from bear market to bull market as they are cashing on the prevailing pessimism and are able to buy stocks at cheap price.Second stage involves a big move and is generally longest in time frame. Stock valuations is increased by virtue of improved business conditions.Third stage involves speculative activity and inflation overtakes the earnings interest and one can see a wall street cab driver giving tips and thus top can not be far behind.

3. Stage one involving accumulation phase needs an analyst to accurately determine the bull trend as pessimism overtakes rationalism and none is ready to believe that bull market has started.

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