Dead cat bounce

Dead cat bounce is a Wall Street term that refers to a small, brief recovery in the price of a declining stock.
History
The term “dead cat bounce” is derived from the idea that “even a dead cat will bounce if it falls from a great
height”. The phrase has been used on Wall Street for many years. The earliest use of the phrase dates from 1985
when the Singaporean and Malaysian stock markets bounced back after a hard fall during the recession of that year.
Journalist Christopher Sherwell of the Financial Times reported a stock broker as saying the market rise was a “dead
cat bounce”. A similar expression has an older history in Cantonese and this may be the origin of the term.
Variations and usage
A short rise in price followed by a price decline of a stock is the standard usage of the term. In other instances the
term is used exclusively to refer to securities or stocks that are considered to be of low value. First, the securities
have poor past performance. Second, there is no indication of an impending rise in price. Lastly, there is no
indication that sustained growth is imminent should a major upward shift occur in the market.
Some variations on the definition of the term include:
• A stock in a severe decline has a sharp bounce off the lows.
• A small upward price movement in a bear market after which the market continues to fall.
Technical Analysis
A deadcat bounce” price pattern may be considered part of the technical analysis method of stock trading. Price
patterns such as the dead cat bounce are recognized only with hindsight. Technical analysis describes a dead cat
bounce as a continuation pattern that looks in the beginning like a reversal pattern. It begins with a downward move
followed by a significant price retracement. The price fails to continue upward and instead falls again downwards,
and exceeds the prior low.



Leave a Reply

Call Now Button