By understanding the complex trends of the market, one gains a powerful tool in making wise, money-making investments. The market does not always behave in the same predictable manner. Instead, trends emerge, and these are dependent upon a great variety of factors. Three important terms to understand are cyclical, seasonal and secular markets.
A secular market is straightforward. A trend goes one way and continues to do so. The stocks may face a dramatic and significant change. As time passes this will continue, perhaps even for a long time, although at a much slower rate.
One analogy to a secular market (of the bear or decreasing variety) would be the use of VHS tapes.They went down substantially as people changed to DVDs and subsequently to the Internet or other digital means. It is highly unlikely that sales of VHS tapes are going to suddenly see a renaissance. Many markets for different items work in this manner as newer and better items replace them. The change can also be a positive one as demand ever-increases for a particular market.
A seasonal market is well-described by its moniker. Certain markets will trend upward or downward during certain times of the year. This is not random, but occurs as a historical fact, and these trends should be considered when investment decisions are made. Many commodities markets behave in this manner. In Timing Techniques, Innovative Studies in Market Rhythm & Price Exhaustion, Thomas R. DeMark purported that you can also see these in financial futures markets and individual equities’ markets.
A cyclical market is also well described by its name. In this trend, the market moves in one direction and then at a point it reverses. Once it gets too low, it will again turn on the upswing, and the cycle will continue.
There are many ways to visualize a cyclical market. ClearFish Research uses a business cycle to represent it. A new and successful business comes into the market, and profits are great. Other businesses rush in, but with ever-increasing numbers comes saturation. Not all survive in a world of stagnant demand. As supply decreases, however, demand is unmet and new opportunities arise. ClerFish suggests that the energy market may be in a cyclical upswing.
By understanding the trends that occur in the various markets, one will be able to better predict the future direction of many different stocks. Of course, the market can be volatile, and these trends often serve as guides more than steadfast rules. The information of these trends can be a powerful tool in understanding and therefore managing investments.
Sources:
http://www.dailywealth.com/898/The-Difference-Between-Secular-and-Cyclical-Bear-Markets
http://seekingalpha.com/article/7024-secular-and-cyclical-trends-in-this-market