Correction

AAA

DEFINITION of 'Correction'

A reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either.

One way analysts attempt to predict whether a market is headed for a correction is to compare one market index to a similar index. For example, if the U.K.'s FTSE 100 has recently underperformed, the S&P 500 in the U.S. might follow suit.

INVESTOPEDIA EXPLAINS 'Correction'

When the market is showing a trend of closing lower, a correction may be at hand. A correction in the market as a whole does not necessarily tell us how any one stock is performing, however. A stock may remain strong despite a correction - for example, consumer staples tend to perform steadily in any market. A stock could also perform about the same as the overall market during a correction, or it could plummet even further than the overall market. A correction can be a opportunity for value investors to pick up good companies at bargain prices.

RELATED TERMS
  1. Bloodletting

    A period marked by severe investing losses. Bloodletting may ...
  2. Panic Selling

    Wide-scale selling of an investment, causing a sharp decline ...
  3. Retracement

    A temporary reversal in the direction of a stock's price that ...
  4. Reversal

    A change in the direction of a price trend. On a price chart, ...
  5. Technical Correction

    A decrease in the market price of an asset or entire market after ...
  6. Capitulation

    When investors give up any previous gains in stock price by selling ...
Related Articles
  1. The Five Biggest Stock Market Myths
    Investing Basics

    The Five Biggest Stock Market Myths

  2. Be Aware Of The Hindenburg
    Technical Indicators

    Be Aware Of The Hindenburg

  3. What Can Traders Learn From Investors?
    Options & Futures

    What Can Traders Learn From Investors?

  4. Trading Divergences In Forex
    Forex Education

    Trading Divergences In Forex

Hot Definitions
  1. Halloween Strategy

    An investment technique in which an investor sells stocks before May 1 and refrains from reinvesting in the stock market ...
  2. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  3. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  4. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  5. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  6. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
Trading Center