Dead Cat Bounce

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What is a 'Dead Cat Bounce'

A dead cat bounce is a temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce is a small, short-lived recovery in the price of a declining security, such as a stock. Frequently, downtrends are interrupted by brief periods of recovery - or small rallies - where prices temporarily rise. This can be a result of traders or investors closing out short positions or buying on the assumption that the security has reached a bottom. A dead cat bounce is a price pattern that is usually identified in hindsight. Analysts may attempt to predict that the recovery will be only temporary by using certain technical and fundamental analysis tools.

BREAKING DOWN 'Dead Cat Bounce'

A dead cat bounce is a price pattern used by technical analysts. It is considered a continuation pattern, where at first the bounce may appear to be a reversal of the prevailing trend, but is quickly followed by a continuation of the downward price move. It becomes a dead cat bounce (and not a reversal) after price drops below its prior low. Short-term traders may attempt to profit from the small rally, and traders and investors alike may try to use the temporary reversal as a good opportunity to initiate a short position.

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RELATED FAQS
  1. What does a Dead Cat Bounce pattern tells traders about a stock?

    Identify the small rally characteristic of a dead cat bounce pattern as a technical trading pattern indicative of a strong, ... Read Answer >>
  2. How can a trader profit from a Dead Cat Bounce pattern?

    Profit from the dead cat bounce chart pattern by using the small, short-lived move upward to initiate a low-risk short position ... Read Answer >>
  3. What is dead money?

    Dead money is a common term used on Wall Street to describe money that does not earn a return for an investor. It could be ... Read Answer >>
  4. How should orders be placed when trying to buy a bounce on a stock?

    Buy stocks on a temporary pullback in price to acquire them at a price level that should be profitable when the stock resumes ... Read Answer >>
  5. How do traders implement the Buy a Bounce Strategy?

    Learn how traders execute the buy a bounce strategy for a security that has reached an important support level. Find out ... Read Answer >>
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    Learn how to discern the difference between a retracement and a reversal, and understand why it is important for traders ... Read Answer >>
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