Dead Cat Bounce

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Definition: Dead Cat Bounce


Dead Cat Bounce

Quick Summary of Dead Cat Bounce


A quick, moderate rise in the price of a stock following a precipitous decline. also called bounce.



Video Guide For Dead Cat Bounce




Full Definition of Dead Cat Bounce


A dead cat bounce is any sharp rise in prices after a severe decline. In order to have a true dead cat bounce prices must decline again following the bounce in prices. Investors who are fooled by a dead cat bounce and mistakenly believe that a market has turned around may buy into a still-declining market and suffer losses. Short sellers are only too happy to sell stock during a dead cat bounce. In order to recognize the difference between a dead cat bounce and a genuine reversal in the overall direction of the market, it is necessary to evaluate the market as a whole. Investors try to spot a dead cat bounce by relying on market indicators to assess the true nature of the market bounce. However, a dead cat bounce can sometimes fool even a market expert.


Dead Cat Bounce FAQ's


What Is A Dead Cat Bounce?

A dead cat bounce is a modest, short-term price recovery in a decreasing asset.

The term “dead cat bounce” refers to a brief price recovery in a decreasing asset that is quickly followed by a continuation of the downturn.

“Even a dead cat will bounce if it falls from a tremendous height,” as the adage goes.

This expression originated on Wall Street and was widely used to describe instances in which a minor recovery can be seen during a significant downturn.

A “dead cat bounce” is a price continuation pattern in technical analysis.

During the early stages of a Dead Cat Bounce pattern, it is possible to confuse it with a trend reversal.

It starts with a downward move, then a significant price retracement.

After a while, however, the price stops rising and the downward trend continues, breaking previous support levels and setting new lows.

As a result, Dead Cat Bounce patterns can lead to what is known as a bull trap, in which traders open long positions and hope for a trend reversal that never occurs.

The phrase was first used in an article by Chris Sherwell in The Financial Times on December 7, 1985.


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Definition Sources


Definitions for Dead Cat Bounce are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 8th April, 2022 | 0 Views.