A fall, a hop, then down once more:a brief rebound, not a cure.
A temporary recovery in price after a significant decline, followed by a continuation of the downtrend.
The bounce can mislead traders into thinking a reversal has occurred.
In plain words
A dead cat bounce is a short-lived rise in a price that has been falling hard, after which the fall resumes. The name is traders’ slang. It can be identified only afterwards: while it is happening, a bounce and a lasting recovery look the same.
See it move
Reached: Bounce
Why it matters
The term is a reminder that a rise after a steep fall is not, taken alone, evidence that the fall is over.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
An invented share falls from 100 to 60, rises to 69 and then falls to 50.
- 1First fall = 100 − 60 = 40, which is 40%
- 2Bounce = 69 − 60 = 9; 9 ÷ 60 = 15%
- 3Second fall = 69 − 50 = 19, to a new low
A rise of 15% looked large, yet it recovered less than a quarter of the 40 lost, and the decline went on.
A common mistake
People speak of spotting a dead cat bounce as it forms. The label can be applied only once the price has made a new low; before that, nobody can tell it from a reversal.
Check yourself
Educational information, not investment advice or a recommendation to trade.