A period of continuous increase in the prices of stocks, indexes or bonds
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What is a Rally?
A rally refers to a period of continuous increase in the prices of stocks, indexes or bonds. The word, rally, is typically used as a buzzword by business media outlets such as Bloombergto describe a period of increasing prices.
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A rally occurs due to several reasons. Short-term rallies are caused by news or events such as a new CEO appointment that affect the demand-supply equilibrium. Rallies can also be long-term, which result from changes in macroeconomic factors such as announcements of changes in key interest rates and fiscal policy.
The stock market is volatile and known for its constant fluctuations. Even seasoned analysts find it hard to predict the direction of the market. Stock prices can go down suddenly after a long period of increase. The market can also experience a sudden increase in stock prices after a long-term downward trend.
Bear Market Rally
A bear market rally refers to a temporary uptrend in prices during a primary trend bear market. The increase is usually between 10% and 20%. It starts suddenly and does not last long. Notable bear market rallies occurred during the stock market crash in the Dow Jones Industrial Average in 1929 all the way to the market bottom in 1932, and in the late 1960s until the early 1970s. It comes in two types:
#1 Short-term bear market rally
This usually lasts from half a day to two days. A short-term bear market rally happens when the stock market experiences several lows within a week or month.
#2 Intermediate-term bear market rally
When the stock market experiences multiple bounces or short-term rallies, they are called an intermediate-term bear market rally.
At first, a bear market rally looks like a good thing as it serves as a respite from an otherwise downward direction of the market. However, it can be risky for investors who buy stocks, thinking that things will improve over time. They may end up losing money when the rallies end and the market resumes its downward spiral.
What to Do During a Market Rally
You can avoid losing money during a market rally, but it entails planning and strategy. Here are some guidelines to consider taking advantage of the upward trend in the market:
Mode of investment
Consider the situation of the market when investing, especially if you’re into equity mutual funds since these investments are significantly affected by the mood of the market. Instead of placing lump sum bets, exercise caution when there’s a bullish market rally.
Asset allocation
Establish a strategy on which asset classes to invest in. As the prices of small- and mid-caps increase and the bets become risky, consider allocating some of your money towards large-cap equity funds, as these may be able to maintain portfolio returns during a market rally.
Manage risk
Higher returns are always a welcome idea, but investors also need to consider the other side of the coin, which is risk management. Many people say, “Don’t put all of your eggs in one basket.” In stocks and investing, it means making your portfolio as diversified as possible, so you can better manage risk.
Related Readings
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To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:
FAQs
a drawing or coming together of persons, as for common action, as in a mass meeting: A political rally that brought together hundreds of the faithful. a get-together of hobbyists or other like-minded enthusiasts, primarily to meet and socialize. Finance. a sharp rise in price or active trading after a declining market.
What does rally mean in slang? ›
: to tease in a good-natured way. Etymology. Verb. from French rallier "to call or come together for a common purpose," from early French ralier (same meaning), from re- "again, back" and alier "to unite" Verb.
What does ready to rally mean? ›
To gather together (retreating troops) so as to bring back into a state of order. Webster's New World. Similar definitions. To come together for a common purpose, esp. to assist or support a cause, person, etc.
What does trying to rally mean? ›
to bring or come together in order to provide support or make a shared effort: [ I ] African-American groups rallied around the president when he was under attack.
Is rally positive or negative? ›
In general, a rally is cause by positive surprises or economic policies that make asset prices more attracting in the near term.
What does in a rally mean? ›
a public meeting of a large group of people, esp. to show support for a particular opinion, political party, or sports team: He helped organize the first national rally against the war.
Is rally a positive word? ›
The verb rally is often used to describe a physical effort that has been renewed, but it can describe anything that involves bouncing back from a setback. For example, if something makes you feel disappointed, you rally to get your positive attitude back.
What are the two types of rally? ›
Rally types. Rallies generally fall under two categories, road rallies and cross-country (off-road). Different types of rally are described however a rally may be a mix of types.
What is a rally example? ›
A rally is a large public meeting that is held in order to show support for something such as a political party. About three thousand people held a rally to mark international human rights day.
How to use the word rally? ›
Examples from Collins dictionaries
About three thousand people held a rally to mark international human rights day. Supporters of the policy are reported to be gathering for a mass rally. His supporters have rallied to his defence. He rallied his own supporters for a fight.
[intransitive, transitive] to come together or bring people together in order to help or support somebody/something. rally around/behind somebody/something The cabinet rallied behind the Prime Minister.
What does I'll rally mean? ›
1 to bring (a group, unit, etc.) into order, as after dispersal, or (of such a group) to reform and come to order.
What does rally around me mean? ›
: to join together to support (someone or something) in a difficult time or situation. We rallied around our neighbors when their house burned down.
Does rally mean up or down? ›
A rally is a period in which the price of an asset sees sustained upward momentum. Typically, a rally will occur after a period in which prices have been flat, trading in a narrow band, or experiencing a decline.
What does rally mean in drinking? ›
(slang) To drink alcohol to the point of vomiting, and then continue drinking afterwards.
What is the difference between a race and a rally? ›
Rallying is typically distinguished from other forms of motorsport by not running directly against other competitors over laps of a circuit, but instead in a point-to-point format in which participants leave at regular intervals from one or more start points.
What is the difference between a rally and a meeting? ›
- meeting, assembly, demonstration : an event organized on one place; - rally : an event constituting a movement from one location to another.
What does a rally consist of? ›
A typical rally will have about 15 to 25 special stages over two or three days. The stages are linked by public roads – called road sections -on which competitors must obey all local traffic laws. Each day contains about 250km of driving – a third of which are the competitive special stages.
What is the purpose of a rally? ›
A rally is a large public meeting that is held in order to show support for something such as a political party. About three thousand people held a rally to mark international human rights day.
