Reagan started this in 1981 - prior to that Presidents had not normally saluted members of the armed forces, even when they themselves were ex-military.
There are some anecdotes out there about how Reagan came to the conclusion that saluting was appropriate. Some sources say that his military aide, John Kilne, told him that as President he could "salute whoever he wanted," while others say that Kline had a problem with the practice, but that USMC commandant Robert Barrow told him it was ok. But as far as I know there's very little info available as to why Reagan wanted to return military salutes. Basically we can only speculate as to his motives, since as far as I know Reagan himself never explained his decision to start saluting.
As for whether it's "technically correct," it's basically protocol now (Obama and Clinton had to be taught how to do it properly, despite never having served in the military), so yes I would say it is definitely the "correct" way to do things. But when Reagan first did it, the answer probably would have been "no." It was not normal or protocol at that point, and even members of the military weren't supposed to salute unless they were in uniform, which of course the President never would have been. Reagan basically made it protocol by deciding that he wanted to do it and making it common practice, but as I said to my knowledge he never really explained why.
Edit: Further digging suggests that Reagan did give an explanation some years later, in this speech:
I would be approaching Air Force One or Marine One and those marines would come to a salute and I -- knowing that I am in civilian clothes -- I would nod and say hello and think they could drop their hand, and they wouldn't. They just stood there. So, one night over at the Commandant's quarters, Marine Commandant's quarters in Washington, and I was getting a couple of highballs, and I didn't know what to do with them. So, I said to the Commandant, I said, 'Look, I know all the rules about saluting in civilian clothes and all, but if I am the Commander in Chief, there ought to be a regulation that would permit me to return a salute.' And I heard some words of wisdom. He said, 'I think if you did, no one would say anything.' So, if you see me on television and I'm saluting, you know that I've got authority for it now, and I do it happily.
Given Reagan's propensity for embellishing/making up stories I would take the specific details of that anecdote with a grain of salt, although it's certainly solid evidence that he made a conscious decision to start saluting, knowing full well that it wasn't protocol at the time.
I don't believe it's considered an obligation or a professional courtesy for the president to salute to any military member. Firstly the president, if considered a member of the military is the highest officer, he is no one's subordinate so there are few times as a military member he would be obligated to salute someone.
Times it may be considered for him improper not to salute, if he is considered to be a part of the military:
When the US National Anthem, “To the Color,” “Hail to the Chief,” or foreign national anthems are played
When you see uncased National Colors outdoors
On ceremonial occasions
At reveille and retreat ceremonies during the raising or lowering of the US flag
During the sounding of honors
When the Pledge of Allegiance is being recited outdoors
When relieving an officer or turning over control of formations
When rendering reports
When greeting officers of friendly foreign countries
Secondly, some people hold the point of view that the president is a civilian, and he acts as commander in chief here so we can have a civilian lead military. This would exclude him from having to salute anything in the military.
So if by technically incorrect, you mean a salute that is carried out despite not being obligatory, I would say yes it is incorrect. Except in some fringe situations he is not required to salute anybody. If by incorrect you mean disrespectful or arrogant, I don't believe so, unless he is saluting sarcastically or fucking up in some way that betrays he didn't put forth the effort to make sure it was done properly.
He is also the highest officer in the military, so as far as the military is concerned he could probably rub his eyes at officers or dance at privates if that's what he wanted to do.
Sources:
http://en.wikipedia.org/wiki/President_of_the_United_States
http://www.texasgopvote.com/military-salute/it-proper-president-render-military-hand-salute-002816