What Is a Dead Cat Bounce?
A dead cat bounce is a term used to describe a short-term recovery in the price of an asset after it has experienced a significant decline. The phrase comes from the idea that even a dead cat will bounce if dropped from high enough, and implies that any recovery in such an asset’s value is only temporary. This phenomenon can be seen in stocks, commodities, currencies, and other financial instruments.
The concept of a dead cat bounce was first introduced by traders who noticed that when stock prices fall sharply over several days or weeks they often experience some sort of rebound before continuing their downward trend. This rebound may last for just one day or up to several weeks depending on market conditions and investor sentiment at the time. While this type of rally does not necessarily indicate long-term stability or growth potential for the underlying security, it can provide investors with opportunities to buy low and sell high during these brief periods of increased activity.