Receptive To Correction
BOSTON — A correction, whether for an individual stock or a broader financial market, is about as complicated as putting your car in reverse gear.
It simply means - going the other way, but temporarily and for a short distance.
Wall Street types usually reach for the term when the stock market backtracks after establishing a trend that takes it higher.
And it's considered a good thing, a chance for the market to pause and gather strength for another push higher.
The direction is still up. (Although corrections can also bring a bounce in a market that is trending downwards, something we haven't seen on Wall Street in about six years.)
A correction generally happens because investors sell some of their holdings to take advantage of recent gains.
Generally, a correction means a retreat of up to 10 percent in value. Anything more than that, and analysts start to talk about a change in market direction.
A market correction, however, can carry more subtlety than a broad move southward.
Sometimes, just parts of the market head lower. Analysts call this a sector correction. And some analysts say Wall Street is currently in its grip.
The sector that contains oil company stocks, for example, may correct after a sharp move higher, while technology-sector stocks keep moving ahead.
Sometimes a correction in one sector masks true activity in the rest of the market.
For example, a sector correction among blue-chip stocks could pull the blue-chip index - the Dow Jones Industrial Average - down, while most stocks are actually moving up higher.
That happened to a degree last week. There were days when the the Dow posted a loss, while the Nasdaq, which includes many high-tech and smaller companies, moved ahead.
At the same time, the Russell 2000 Index, which measures smaller companies, showed gains on some of the days that the Dow was down.