What is a Rally?

A rally is known as the period of a continued upsurge in the prices of Bonds, stocks or relevant indexes. Usually, a rally comprises substantial or rapid upside moves over a short period of time.

This price movement type may happen either during the bear Market or bull market, whereas it is known as a Bear Market rally and bull market rally. But typically, a rally follows a period of declining or Flat prices.

Explaining a Rally

In the stock market, this term is loosely used while referring to increasing swings. As far as the rally duration is concerned, it varies and relatively depends upon the time frame that has been used to analyze markets.

For instance, for a Portfolio manager, the last calendar quarter could be perceived as a rally while handling a large retirement fund, despite the previous year being a bear market. On the other hand, for a Day Trader, the initial 30-minutes of the trading could be regarded as the rally.

A rally is the result of a substantial rise in demand that comes from a massive influx of investment in the market. This turns into an increase in the bidding prices. The magnitude or length of a rally is largely dependent on the buyers’ depth and the amount of pressure for sale they experience.

Suppose there is a large number of buyers, but only some of the investors are willing to sell, there will be possibly a large rally. However, if the same number of buyers are matched by the same amount of sellers, the rally will be short, and the movement of price will be minimal.

Also, there are several technical indicators that are useful in confirming the rally. To begin with, there are oscillators that instantly assume the overbought conditions. And then, there is price action that displays higher highs along with strong volume; and higher lows along with weak volume.

As far as the Underlying causes of rallies are concerned, they also vary accordingly. If there is an event or a news story that has created a short-term imbalance in demand and supply, it can lead to short-term rallies.

Apart from that, a short-term rally can also be caused by massive buying activity in a certain sector or stock or through the introduction of a latest product by a well-known brand. For instance, every time a new iPhone comes into the market, Apple Inc. stocks experience a rally for a few consecutive months.