Dead cat bounce: what is it & how to spot a dead cat bounce

What is a dead cat bounce?

A dead cat bounce, also known as a “cat bounce,” is a brief recovery in the price of a stock or other security following a sharp decline. This type of recovery is typically short-lived and is often followed by an even more significant drop in price. This phenomenon comes from a common belief that even dead cats will bounce once they land on the ground after falling – though this idea is false in numerous scientific experiments. Overall, the term “dead cat bounce” is used to describe any temporary uptick in the price of an asset following a steep decline. Whether this phenomenon occurs due to human psychology, market manipulation, or some combination of the two remains an area of ongoing research and debate among financial analysts and economists.

How long does a dead cat bounce last?

A dead cat bounce is a slight rebound in the price of a stock after a significant decline. The name comes from the idea that even a dead cat will bounce if it falls from a high enough height. While there is no definitive answer to how long a dead cat bounce lasts, most experts agree that it is typically a short-lived phenomenon. Some believe that the bounce length depends on the decline’s extent, while others believe that it is primarily determined by market psychology. However, there is no hard and fast rule, and a dead cat bounce can last for several days or weeks. Ultimately, the duration of a dead cat bounce is challenging to predict and will vary from case to case.

How do you tell if it is a dead cat bounce?

While it can be challenging to see the signs of a dead cat bounce, there are several signs that you can look for. First, the decline should be sharp and sudden, with no apparent catalyst. Second, the trading volume should increase as more investors jump in during the rebound. Finally, the rebound should be relatively short-lived, with the stock quickly resuming its downward trend. If you see these signs in a stock you are considering investing in, it may be best to wait for the dead cat bounce to run its course before buying.