Financial Encyclopedia
Dead Cat Bounce
Definition
A Dead Cat Bounce is an expression from the stock market that describes the situation of a short-term recovery in prices, after which the price continues to decline.
Example
In March 2000, a share of Cisco Systems was worth $82, and a year later the price dropped to $15.81. Further, in November 2001, the price recovered to $20.44, but in September 2002 it fell again to $10.48.
More detailed
Sometimes a downtrend is interrupted by a short period of price recovery. This may be the result of traders/investors covering short positions or buying on the assumption that the security has bottomed out.
A Dead Cat Bounce is usually recognized behindhand and is difficult to identify in real time. Analysts may try to predict that the recovery will only be temporary using certain technical and fundamental analysis tools.
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