Dead Cat Bounce
A brief, temporary price recovery in a declining asset or market before the downtrend resumes.
What is Dead Cat Bounce?
A dead cat bounce is a short-lived rebound in the price of a declining security or market index that occurs within a broader downtrend, typically driven by short covering, bargain hunting, or momentary shifts in sentiment rather than a genuine improvement in fundamentals. The name alludes to the idea that even a dead cat will bounce if it falls from sufficient height. Traders and technical analysts watch for dead cat bounces to avoid mistaking temporary rallies for true trend reversals. Low volume on the rebound, failure to reclaim key resistance levels, and subsequent resumption of the decline are the hallmark signs that a recovery was merely a bounce.
Example
During the 2008 financial crisis, the S&P 500 fell from 1,565 in October 2007 to 1,270 by March 2008, then bounced back to 1,440 by May 2008 as bargain hunters stepped in. The rally proved to be a dead cat bounce — the index continued its decline, reaching a crisis low of 666 in March 2009.
Source: S&P Dow Jones Indices