What is a ‘Rally’
A rally is a period of sustained increases in the prices of stocks, bonds or indexes. 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 respectively. However, a rally will generally follow a period of flat or declining prices.
Explaining ‘Rally’
A rally is caused by a significant increase in demand resulting from a large influx of investment capital into the market which 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.
Identifying a Rally
The term “rally” is used very loosely when referring to upward swings in markets. The duration of a rally is what varies from one extreme to another, and is relative depending on the time frame used when analyzing markets. A rally to a day trader may be the first 30 minutes of the trading day in which price swings keep making new highs, while a portfolio manager for a large retirement fund looking at a much larger picture may perceive the last calendar quarter as a rally, even when the last year has been a bear market.
Underlying Causes of Rallies
The causes of rallies also vary significantly. Short-term rallies can result from news stories or events that create a short-term imbalance in supply and demand. Very sizeable buying activity in a particular stock or sector by a large fund, or an introduction of a new product by a popular brand can have a similar effect that results in a short-term rally. For example, almost every time Apple Inc. has launched a new iPhone, its stock has rallied by an average of 23 percent over the next six months.
Further Reading
- Short positions, rally fears and option markets – www.tandfonline.com [PDF]
- Santa Claus Rally and firm size – www.emerald.com [PDF]
- The socio-economic impact of the FIA World Rally Championship 2007 – www.tandfonline.com [PDF]
- Singapore's National Day Rally speech: A site of ideological negotiation – www.tandfonline.com [PDF]
- The role of effort in moderating the anxiety–performance relationship: Testing the prediction of processing efficiency theory in simulated rally driving – www.tandfonline.com [PDF]
- Enriching Economics through Global Education and Service Learning: 5th Graders Rally around the Rainforest. – eric.ed.gov [PDF]
- The great he-cession: Why feminists should rally for the end of white supremacist capitalist patriarchy – www.tandfonline.com [PDF]
- Coronavirus Spreads and Bitcoin's 2020 Rally: Is There a Link? – hal.archives-ouvertes.fr [PDF]
- A triple bottom line analysis of the impacts of the Hail International Rally in Saudi Arabia – www.tandfonline.com [PDF]
- Porto street stage at Rally Portugal: the determinants of the length of stay – www.tandfonline.com [PDF]
