Does anybody else despise the use of the term “correction” as it applies to markets? I have always thought the term was presumptuous, particularly when uttered by people who like to make things sound more technical than they really are. It always smacked of someone thinking that they somehow know what the “true” value of the market is.
Yeah, correction makes it sound as if the old prices were incorrect, yet the new ones are.
Yes. But I also despise 90% of what the talking heads say about the markets. Reminds me of used car salesmen. “Based on these technicals, we are going to head and shoulders our way to new highs. Obamacare presents negative headwinds, but quantative easing will prove to be a strong enough motor to power through this new normal.”
I dont’ really like it, because the line between what counts as a “correction” and waht counts as a “sell off” or “panic” or “crisis” isn’t clear at all. However, I’m not sure what other word you’d use to describe a “typical [downward] bump that is unlikely to signal a major sell-off.” Correction seems to be as good as anything.
I agree with you that a lot of people use the term “correction” to imply subtly that they know what the “correct” value of the market is, without having to say what that value actually is, and it annoys me when people act smug while doing that.
“Correction” is just a way to make ignorant people feel good about losing money.
Troof!
Remember kiddos, they are not there to give real market wisdumb, they are there so the network can attract viewers and sell advertising.
Probably some perma-bear went on TV and said the market is overdue for “correction” because it was going up. And then the term stuck.
Aye, I agree with OP. Despise the usage of the term.
I agree, that term really bothers me too. Other things which also bother me:
- people’s obsession with historical price charts, as if the price a security traded for in the past is its most relevent characteristic.
- technical terms like “support” and “resistance”
- when news outlets report the number of points an index or stock gained or lost during the day instead of the percent change
- pretty much every discussion of real estate but especially when average “days on the market” is used to determine if it’s a “buyer’s market” or a “seller’s market”
that pisses me off as well. 1 channel in the UK always reports how many points the ‘index of one hundred leading shares’ has gone up/down by during the day. What’s wrong with saying the FTSE 100 like everyone else?
I also hate the term correction, reminds me of what people kept saying in 2008…
Also hate that points vs. percentage. The DOW was up 30 points today! Well, whoopty fricking do. Tell us WTF it really means.
Using ± points for DOW is especially egregious because the index itself is so skewed towards high-priced stocks: http://www.indexarb.com/indexComponentWtsDJ.html
And yet the correlation of returns between the Dow and the S&P500 is +0.99.
That skewness is meaningless.
I used to tell students that the Dow is reported mostly for historical reasons, and because - with an extremely high correlation to other indexes - the fact that it’s a price weighted index doesn’t seem to make a huge difference in practice. I pay attention to the S&P500 for work purposes, but it somehow feels incomplete if they don’t mention the Dow - because one’s used to hearing it quoted along with anything else.
I do wish they would report percentages instead of points, but most people who follow it tend to know the level enough that they can make the transformation in their head.
Correlation over what period?
Long-term, sure. Also, we are all dead.
Short term, a $1 price change in IBM can pull the DOW down much more than it would S&P.
Using SPY and DIA as proxies, the 1-year correlation is 0.96; 3-year is 0.97; 5-year is 0.97; 10-year is 0.97; and 15 year is 0.95.
Yep, I just grabbed DIA and SPY off of Yahoo, used the total return adjusted values to compute daily returns. Dow and S&P 500 are correlated by 0.955 from 20 Jan 1998 to yesterday (30 Jun 2014). Is that close enough for naren_?
(Admittedly, since these are proxies, the tracking error reduces the observed correlation a bit, so the actual correlation is likely higher).
Looks like one can be dead in the short run too.
What’s interesting is that you can no longer download the DJIA (^DJI) from Yahoo! Finance. You used to be able to, but a couple of years ago something happened, and the Download to Spreadsheet link at the bottom of the Historical Prices page is now gone.
it’s like saying ‘broken arrow’
^ I never noticed that. Apparently Dow Jones wants a licensing fee to allow downloading and Yahoo won’t pay it.