Dull Market

A dull market is a market where there is little activity. A dull market consists of low trading volumes and tight daily trading ranges. There is very little change and action during a dull market. A common phrase when dealing with dull markets is, "never short a dull market." Some believe that the market is storing energy during dull markets and that the market is preparing for a rally.

A dull market can also be referred to as a flat market or in other words a market at rest. An example would be seeing the market end at or near the same price as when it opened for an extended period of time. During a dull market, investors feel that once the market awakens, the market is generally set to rise. Any moves after a dull market tend to be larger moves due to the lack of activity. The globalization of the financial industry has reduced the time a market remains dull.

When markets are unusually slow, they are often dominated by smaller or retail investors, who don't usually take short positions. Smaller investors are traditionally long-only. A dull market also gives way to complacency, which can hurt even very intelligent institutional level investors. The complacency that goes hand in hand with a dull market could get investors into serious trouble, if they don't understand where the market is in relation to its longer term trends.

Investors should definitely do their research on dull market stocks because a flat base, which is how a dull market looks on a chart, is one of the few reliable patterns that quality stocks form before they make substantial price advances. While it may seem like a stock is stagnant for weeks, it may be quietly winding itself up for a big climb.

Investors and traders should look for these favorable characteristics from a dull market, which may indicate a future upward run.

• After a prior advance, the stock declines a modest amount — no more than 15 percent from its prior high.
• The shallow consolidation takes place over five weeks or a bit longer.
• Often a flat base develops after a stock breaks out of a cup with handle or other sound base, and climbs 20 percent or more from the buy point. 

When a stock is going through a dull period, it is quite likely that institutional investors are buying shares, adding to their positions carefully in order to not run up the price too quickly.