DEFINITION of 'Technical Correction'

A decrease in the market price of an asset or entire market after extensive price increases. A technical correction occurs even when there is no evidence that the increasing price trend should cease.  A correction is typically a decline of 10% or more from the most recent high in a market or security. It is often caused when investors temporarily slow down their purchases of securities, which commonly leads to a pullback toward a short-term support level. It's called a technical correction because it is based on technical analysis, which is the study of markets and market participants. Technical analysis focuses on price and price trends, as opposed to fundamental analysis, which focuses on financial metrics.

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BREAKING DOWN 'Technical Correction'

A technical correction is a drop in stock or market prices when there is no fundamental reason for a decrease. After a steady increase in value, investors may become more cautious buyers at the higher prices and look to reevaluate the market or stocks, resulting in a decrease in purchases, and therefore the price. The drop in purchase volume will stop the upward price trend from continuing while the market re-evaluates the short-term direction. A correction is not the same as a Bear market, which is a decline of 20% or more from the most recent high. There have been, on average, at least one market correction a year since 1900, although they do not necessarily occur every year. The last market correction occurred in December of 2016 for the S&P 500.

  1. Correction

    A reverse movement, usually negative, of at least 10% in a stock, ...
  2. Technical Decline

    A technical decline is a fall in the price of a security caused ...
  3. Trending Market

    A market that is trending in one direction or another. A bull ...
  4. Correction Notice

    A notice indicating that a process or application contains errors ...
  5. Stock Analysis

    Stock analysis is the evaluation of a particular trading instrument, ...
  6. Low Volume Pullback

    A low volume pullback is a technical correction toward an area ...
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