The definition of a bull market is higher highs with higher lows. While the definition of a bear market is lower lows and lower highs. It is important to understand that during either of these market conditions the market does not move in a straight line up or down. It is the battle between these two biases that creates the volatility and gradually moves in the direction of the victor.
Wall Street spends so much of its resources to prove their side of the story. The Wall Street majority creates the momentum in either direction. Typically in either a bull market or bear market, the momentum build as it nears the end of its move. This process of momentum building is due to the minority of Wall Street caving to their peers. And it is as this point what represents the best opportunity to profit in the stock market.
History has told us that the moment a market condition is declared we typically see the greatest losses by market participants. The point where Wall Street agrees is where we see Main Street America jumps on the bandwagon. This is why Main Street is known as the “lambs” and the bulls or the bears lead them to slaughter.
Market condition can be described most like waterway tides. When a tide is moving in one direction, it is likely everything in the water column is moving in that same direction. With this concept in mind we need to understand that if we are in a bull market then we should be looking for the winners and not betting against the losers. We can also say that if we are in a bear market we should not be looking for the winners but more for the losers we can bet against. It is not impossible for individual stocks to fight the market tide, but it is much more difficult to swim against the current, so as the saying goes it is much easier to go with the flow.
When we are considering investing in the stock market, the most important factor is who is winning the bull market vs bear market battle. Understanding what the market environment is crucial in making objective investment decisions.