The term “Bull Market” is used to refer to a financial market which is climbing in value, or to a market which is projected to rise in value. For investors, bull markets tend to be positive, since the value of the stocks, bonds, currencies, or commodities being traded will rise rapidly. However, a bull market is also typically followed by a market decline, and it may be characterized by several market corrections which can be nerve-wracking to endure.
The opposite of a bull market is a “Bear Market”, a market in which values rapidly fall and this fall is sustained across several markets. A bear market can trigger a serious recession or depression, if consumers become too despondent. A bear market may follow a bull market, but more commonly the market stabilizes through a series of corrections, small and temporary drops in market value which bring prices down to a more reasonable and sustainable level.
A market correction in the financial market is when there is a pullback in stock prices, and it can be regional or global in nature. Typically, a correction is represented by a short-term drop in market prices that might be attributed to extraneous circumstances unrelated to underlying financial conditions of a stock. During a correction, stocks typically lose 5 percent to 20 percent of their value in a matter of weeks or months. There is no one way for investors to play a market correction correctly, although there are certain strategies that could work if the investor is in a financial position to make changes.
Market bottoms are the low point of a market trend that has been on the decline. Essentially, the market bottom is the point at which the downturn levels off after the period of decline, and shows signs of stabilizing. Many analysts see a market bottom as a good sign that the price level will shortly enter into a period of prosperity after the period of short term or long term decline. There are no absolute signs that will always indicate that a market bottom is about to take place. However, there are a couple of general trends that can alert investors to the potential for the bottom of the market to be reached.
Trend reversals are changes in the direction of individual investments or a market as a whole. Sometimes known simply as a reversal, a trend reversal identifies a shift in investment activities that is anticipated to remain in place for an appreciable period of time. This shift may be a rally for a given stock, or a rally for a stock market as a whole. A trend reversal may not be a positive occurrence, as it can also mean a market or individual investment is entering a period of sustained downturn.
There are several factors that influence stock price, depending on whether one is talking about valuation at the time of an initial public offering or ongoing price fluctuations on the secondary market. Stock prices are dependent on the value of a company, current economic conditions, and willingness on the part of investors to pay. As many people who follow the market are aware, stock prices can be extremely volatile.
A form of fundamental analysis that looks to compare the valuation of one security to another, to a group of securities or within its own historical context. Valuation analysis is done to evaluate the potential merits of an investment or to objectively assess the value of a business or asset.
The valuation analysis is based on either current projections or projections of the future. Many types of valuation methods are used, involving several sets of metrics. For equities, the most common valuation metric to use is the P/E ratio, although other valuation metrics include: Price/Earnings, Price/Book Value, Price/Sales, Enterprise Value/EBIDTA, Economic Value Added and Discounted Cash Flow.
A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging transactions purchase opposite positions in the market in order to ensure a certain amount of gain or loss on a trade. They are employed by portfolio managers to reduce portfolio risk and volatility or lock in profits.
The closure of an investment position. Sometimes referred to as closing out a position. A good example would be unwinding current position by entering into the opposite transaction and making a new position for future gain.
Investors have a love-hate relationship with stock ratings. On the one hand, stock ratings are loved because they convey a message how an analyst feels about a stock. On the other hand, they are hated because they can often be a manipulative sales tool. “Buy“, “Sell” and “Hold” ratings are effective because they quickly convey the bottom line to investors. But the main reason why ratings are good is that they are the result of the reasoned and objective analysis of experienced professionals. It takes a lot of time and effort to analyze a company and to develop and maintain an earnings forecast. And, while different analysts may arrive at different conclusions, their ratings are efficient in summarizing their efforts.
A positive change in the rating of a equity. An upgrade is usually triggered by a steady improvement in the fundamentals and financials of the company’s operations. Upgrades to investment ratings for stocks is issued by brokerage houses. In the context of portfolio management, the term “upgrade” also refers to a strategy whereby the risk profile and quality of the portfolio is improved by including blue-chips in it, while eliminating speculative stocks. An example of an equity upgrade would be an analyst raising the investment rating for a particular stock (or sector) to “buy” from “hold”. An upgrade of this nature would sometimes be accompanied by an upward revision in the analyst’s target price for the stock.
A negative change in the rating of a equity. This situation occurs when analysts feel that the future prospects for the stock have weakened from the original recommendation, usually due to a material and fundamental change in the company’s operations, future outlook or industry. Analysts place recommendations on securities to give their clients or investors a general idea on the expected performance of that security looking forward. These recommendations are adjusted when the basis behind the recommendation changes, such as the price of the stock or newly released data in the company’s financial statements. An analyst may downgrade a stock from a buy to a sell.
An analyst’s opinion regarding the future performance of a security. Overweight will usually signify that the security is expected to outperform either its industry, sector or, even, the market altogether. An example of an analyst’s rating of overweight would be the stock’s return is expected to be above the average return of the overall industry over the next eight to 12 months. Specific analyst definitions vary regarding the time frame used and the benchmark the security is compared against.
An analyst’s opinion regarding the future performance of a security. Underweight will usually mean that the security is expected to underperform either its industry, sector, or even the market altogether. An example of an analysts underweight definition is, the stock’s return is expected to be below the average return of the industry over the next eight to 12 months. Analyst’s definitions vary regarding the time frame used and the benchmark the security is compared against.
An analyst stock recommendation “outperform” that means a stock is expected to do slightly better than the market return. Also known as “market outperform”, “moderate buy”, or “accumulate”. Exact definitions vary by brokerage, but in general this rating is better than neutral and worse than buy or strong buy.
An analyst stock recommendation “underperform” that means a stock is expected to do slightly worse than the market return. Also known as “market underperform”, “moderate sell”, or “weak hold”. Exact definitions vary between brokerages, but in general this rating is worse than neutral but better than sell or strong sell.
A strategy undertaken by an investor or an investment manager that seeks to profit from both increasing and decreasing prices in a single or numerous markets. Neutral strategies are often attained by taking matching long and short positions in different stocks to increase the return from making good stock selections and decreasing the return from broad market movements. A neutral position may involve taking a 50% long, 50% short position in a particular stock, or taking the same position in the broader market. There is no single accepted method of employing a market-neutral strategy.-
A “Blue Chip” is stock in a corporation with a national reputation for quality, reliability and the ability to operate profitably in good times and bad. The most popular index which follows Indian blue chips is the Bombay Stock Exchange (BSE) & National Stock Exchange (NSE). The BSE Sensex Industrial Average is a price-weighted average of 30 blue-chip stocks and NSE Nifty Industrial Average is a price-weighted average of 50 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market.
Insider trading is illegal in India. When information, which is sensitive in the form of influencing the price of a scrip, is procured or/and used from sources other than the normal course of information output for unscrupulous inducement of volatility or personal profits, it is called as Insider trading. Insider trading refers to transactions in securities of some company executed by a company insider. Although an insider might theoretically be anyone who knows material financial information about the company before it becomes public, in practice, the list of company insiders (on whom newspapers print information) is normally restricted to a moderate-sized list of company officers and other senior executives.
ASBA (Applications Supported by Blocked Amount)
This is a process developed by the India’s Stock Market Regulator SEBI for applying to IPO. In ASBA, an IPOapplicant’s account doesn’t get debited until shares are allotted to them.