Legal Definitions - down reversal

A down reversal refers to a sudden and significant drop in the market price of an asset, such as a stock, commodity, or cryptocurrency, that occurs immediately after a period of sustained price increases. It marks the initial phase of a price decline following an upward trend. If this decline continues for an extended period, typically several months, it is then referred to as a "bear market." This phenomenon is also commonly known as a "correction" or "market correction."

Here are some examples to illustrate this concept:

• Imagine a technology company's stock that has been steadily climbing for the past eight months, reaching new all-time highs as investors anticipate strong future growth. One morning, the company announces a recall of its flagship product due to a manufacturing defect. Within hours, the stock price plummets by 12%. This immediate and sharp drop after a prolonged period of growth is a down reversal, signaling the start of a potential downturn for the stock.

• Consider the price of a popular cryptocurrency that has seen its value double over the last three months, driven by increasing adoption and positive media attention. Suddenly, a major government announces new, stricter regulations on cryptocurrency trading. In response, the cryptocurrency's price drops by 25% within a single day. This rapid decline, following a significant upward trend, exemplifies a down reversal as investors react to the unexpected news.

• An exchange-traded fund (ETF) that invests in companies developing artificial intelligence has been on a consistent upward trajectory for over a year, reflecting strong investor confidence in the AI sector. However, a prominent economic report is released, indicating a broader economic slowdown that could impact corporate spending on new technologies. Over the next few trading sessions, the AI ETF's value falls by 7%. This initial, sharp decline after a long period of gains represents a down reversal for the fund.