Learn something new every day
More Info... by email
A technical rally is an upward price movement that takes place even though the market in general is demonstrating a trend of descent. The rally is usually short lived and will cease as the market begins to level off. At that point, the stock that had enjoyed the technical rally may go into a brief period of decline.
The phenomenon of a technical rally in the face of a generally descending market is usually created by something other than the economic factors that normally drive the demand for the stock. For example, investors who are hunting for bargains during the period of decline may identify a given stock offering as having potential to turn a handy profit once the market trend has reversed. If enough investors begin to show an interest in a given stock, it may begin to demonstrate a pattern of increase that is contrary to the rest of the market.
It is this increased interest and the resulting increase in the price per share that ultimately causes the brief period of technical rally to end. Once the interest subsides, the price for the stock will level off and may hold steady while the market goes through a reversal period and begins to rise once again. At that point, the stock may begin to follow the market trend or experience a brief period of falling behind other similar investments before lining up with the market.
A technical rally is not an uncommon event. In fact, many investors have identified some great long term holdings by being on the lookout for upward price movements during a period of general decline. While the technical rally is usually followed by a short period of technical decline, it is often the case that the stock will emerge as a profitable for the investor, and begin to respond once again to the usual economic forces that govern upward and downward movements. For the investor that can afford to hold on to the stock during these upward and downward movements, the rewards can be significant.