Five Characteristics of a Bull Market

Certainly today's stock market is stuck in a very deep bear market during this terrible economic recession we are currently encountering. The bulls are all in hiding and the bears have been in control since late 2007. Since things are looking so bleak and nasty right now, I decided now would be a good time to remember that there are going to be bull markets again at some point. Let's take a look at five major characteristics of a bull market.

1. Economic Growth- Clearly the economy matters a whole lot to the stock market, as well it should. If we are in a period of consistent economic growth there is a good chance we will either be in a bull market, or one will be starting shortly. The whole basis of how a stock is valued is based on how well a company is doing economically, so while some companies may do better than others in a strong economy the market as a whole should be very strong.

2. Less volatility- Volatility tends to be a friend of a bear market and the lack of volatility tends to lead to higher prices. If you step back and watch the market you'll notice that in a down market the daily swings tend to be much larger than in an up market. In a bull market things are more stable and under control and the gains are generally small and steady.

3. Reasonably amount of certainty- Another way to term this one would be a lack of uncertainty. Uncertainty is one of the biggest allies of a bear market and one of the biggest enemies of a bull market. As long as market participants can feel pretty comfortable that estimates at blue chip companies are accurate and economists forecasts are pretty much in line then the market typically behaves well.

4. Strong market breadth- During a true bull market there is strength throughout many market sectors. Typically the volume to the upside will be much stronger than that to the downside. The number of stocks rising on an up day will dwarf that of stocks declining. In a bear market rally the move is typically from a smaller number of stocks and the breadth isn't as strong.

5. Strong corporate balance sheets- It is very important to have a large amount of companies with strong corporate balance sheets. In a strong economy a company that is very solid from a balance sheet standpoint is able to take advantage of the strength much more. Strong balance sheets also reward investors with a nice dividend, which is always a good perk.

Those are five characteristics of a strong bull market. It will come again, don't worry! For all of our sakes, let us hope it is sooner rather than later!