Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated September 30, 2020

What is a Dead Cat Bounce?

A dead cat bounce refers to a temporary recovery in a stock price or a temporary market rally after a significant downward trend.

How Does a Dead Cat Bounce Work?

For example, let's assume the market has been falling over the last ten weeks but there is a broad market rally in week 11. The rally is considered a dead cat bounce if it's short-lived and the market continues to fall again in week 12.

Most of the time, waffling causes a dead cat bounce. During a long downward slide, some investors may think that the market or a particular security has bottomed out. They begin buying instead of selling, or some may be closing out their short positions and pocketing gains. These factors create a little buying momentum, albeit brief.

Why Does a Dead Cat Bounce Matter?

A dead cat bounce is by definition a temporary change, but it can be very difficult (if not impossible) to reliably determine at the time if the rally is actually the beginning of a sustained reversal.

Short-term investors often enjoy a dead cat bounce because there is opportunity in the short term change in direction.

Ask an Expert about Dead Cat Bounce
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Dead Cat Bounce.
Be the first to ask a question

If you have a question about Dead Cat Bounce, then please ask Paul.

Ask a question

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
 - profile
Ask an Expert about Dead Cat Bounce

By submitting this form you agree with our Privacy Policy

Share
close