Meaning – A correction is a reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. The latest stock market correction occurred on February 8, 2018 as the DJIA and the S&P 500 fell more than 10% from their recent highs hit in late January, 2018.
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. A correction is very different from a crash since it measures the percentage decline from the most recent high. A crash is generally considered to be a 10% or more decline, irrespective of the most recent high. For investors, corrections provide a chance to see how truly comfortable they are with market risk, and to make changes to their portfolio if warranted. They also provide investors with an opportunity to potentially add companies at discounted prices, or to dollar cost average down on existing positions.
– Prasun Banerjee, Editor TJEF
This Budget Season, we witnessed huge drama on the stock market, with Finance Minister announcing the revival of the LTCG-tax of 10%, the market nose-dived and continued to do so until the magical word of “grandfathering” announced by Mr. Arun Jaitley. Here we try to pictorially depict what LTCG-tax means in Indian context and its implications. Feel free to comment, how you feel about it.
Meaning – Coined originally by CNBC host Jim Cramer, FAANG is an acronym that refers to the five high performing technology stocks of Facebook, Apple, Amazon, Netflix and Google. These stocks combined have a market capitalization of $2.8 trillion which is roughly 13% of the size of the US Economy.
These stocks have a significant influence on the capital markets. As of June 2017, the S&P 500 has increased by 8.5% year-to-date, compared to the FAANG stocks’ prices which have all gone up more than 30%, save for Google which is up 24% YTD. If you take the FAANGs out of the S&P 500 list, the S&P would have only gone up 1.4%. The Y-O-Y growth in earnings of these companies have solidified their reputation as the favoured stocks to invest in the market.
Meaning – A bull trap is a false signal indicating that a declining trend in a stock or index has reversed and is heading upwards when, in fact, the security will continue to decline. The move “traps” traders or investors that acted on the buy signal and generates losses on resulting long positions. A bull trap may also be referred to as a whipsaw pattern.
It results from the absence of sufficient buyer interest to decisively reverse the downtrend. Traders who buy the stock on seeing it moving up for a while get trapped at a higher price point once the price reverses to continue its downward trend. Some traders use an appropriate stop loss order instructing their brokers to sell the stock once it falls below its previous minor low in order to avoid further losses.
Meaning – A security whose performance is considered to be an indicator of the performance of its particular sector or industry or the market as a whole. It is also referred to as a bellwether stock.
Barometer stocks are usually large-cap equities or respected blue-chip stocks that signal a bullish market during periods of favorable performance and signal a bearish market during periods of unfavorable performance. Barometer stocks can have a large influence on the economic health of the country. Market analysts sometimes say something to the effect of, “What’s good for [barometer stock] is good for the country.”
Meaning – A slang term that represents a stock or other security that is approaching $0 in price. Arriving in bagel land is usually the result of one or more major business problems that may not be resolvable. This term is typically used to describe an asset that has fallen from grace as opposed to a penny stock or other historically cheap security.
If a stock or other asset is headed toward bagel land or is approaching $0 (resembling the hole in the middle of a bagel), investors generally feel that the security is nearly worthless. In such cases, a company may be nearing bankruptcy or facing major solvency issues. While returning from bagel land is possible, the likelihood that equity investors will lose their entire stakes in the company becomes very high.