A rally is a period of sustained increases in the prices of stocks, bonds, or related indexes. A rally usually involves rapid or substantial upside moves over a relatively short period of time. This type of price movement can happen during either a bull or a bear market, when it is known as either a bull market rally or a bear market rally.
A rally is caused by a significant increase in demand resulting from a large influx of investment capital into the market. This leads to the bidding up of prices. The length or magnitude of a rally depends on the depth of buyers along with the amount of selling pressure they face.
For example, if there is a large pool of buyers but few investors willing to sell, there is likely to be a large rally. If, however, the same large pool of buyers is matched by a similar amount of sellers, the rally is likely to be short and the price movement minimal.
Reason for Rally
- Long term rally
Longer term rallies are typically the outcome of events with a longer-term impact such as changes in government tax or fiscal policy, business regulation, or interest rates.
Economic data announcements that signal positive changes in business and economic cycles also have a longer lasting impact that may cause shifts in investment capital from one sector to another
- Short term rally
News stories or events that create a short-term imbalance in supply and demand.
introduction of a new product by a popular brand
buying activity in a particular stock or sector by a large fund
Bear Market Rally
A bear market rally refers to a temporary uptrend in price during primary trend bear market. The increase is usually in between 10-20%. It starts suddenly and does not last long. Market prices can rise even during a longer-term down trend.