A dead cat bounce is a temporary recovery from a prolonged decline or a bear market that is followed by the continuation of the downtrend. The name "dead cat bounce" is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.

Dead Cat Bounce Definition & Example | Investing Answers

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.

A dead cat bounce can be seen in the broader economy, such as during the depths of a recession, or it can be seen in the price of an individual stock or group of stocks. 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 it 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 may try to use the temporary reversal as a good opportunity to initiate a short position.

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Similar to identifying a market peak or trough, recognizing a dead cat bounce ahead of time is fraught with difficulty, even for skilled investors.

In March , for example, Nouriel Roubini of New York University referred to the incipient stock market recovery as a dead cat bounce, predicting that the market would reverse course in short order and plummet to new lows.

In fact, March marked the beginning of a protracted bull market, eventually surpassing its pre-recession high. Stock prices for Cisco Systems Inc. Cisco saw many dead cat bounces in the ensuing years. Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.

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