What Is A Dead Cat Bounce?

The saying refers to the concept of anything bouncing up if it falls hard enough. However, those bounces are usually false signals and are not to be taken as a sign things are improving. It's probably temporary before the big fall continues.
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Giles Coghlan
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The Dead Cat Bounce – What It Means In Trading

There’s a saying in Wall Street which is called a dead cat bounce. Now, what is a dead cat bounce?

Well, it’s a fairly macabre saying, but it comes from the sentiment, that is, that anything if it falls from a high enough height will bounce. 

But just because it bounces, the bounce is only because it’s fallen from a very high height.

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So, here’s an example with the S&P 500, we can see the S&P 500 fell from around just above 3400 handle falling to hit the 2900 handle before there was dead cat bounce up to 3100.

So, any sort of short-term bounce after any asset has fallen from a high height is refer to as a dead cat bounce. And, of course, you don’t want to be buying into a dead cat bounce, thinking it’s a recovery because, after all, it’s only because the asset has fallen from a very high height, hence, even dead cats will bounce if they’re dropped from a high enough height.

So, the next time you hear the saying, a dead cat bounce, you’ll know exactly what is being referred to.

 

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