A dead cat bounce refers to a temporary recovery in a stock price or a temporary market rally after a significant downward trend. For example, let's assume the market has been falling over the last ten weeks but there is a broad market rally in week The rally is considered a dead cat bounce if it's short-lived and the market continues to fall again in week 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.

Trading a Dead Cat Bounce - Learning Markets

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.

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. Our in-depth tools give millions of people across the globe highly detailed and thoroughly explained answers to their most important financial questions.

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