Dead Cat Bounce
Definition
A temporary recovery in the price of a declining asset, followed by a continuation of the downtrend.
Explanation
The colorful term comes from the idea that even a dead cat will bounce if dropped from a great height. Dead cat bounces occur because: (1) short sellers cover positions to lock in profits, creating temporary buying pressure; (2) bargain hunters buy too early; (3) algorithmic trading systems trigger mean-reversion signals. The key distinguishing feature is declining volume on the bounce — a genuine reversal typically shows increasing volume. The 2008 bear market included several 10-15% dead cat bounces before the final March 2009 bottom.
How Stoquity Uses This
Stoquity incorporates dead cat bounce analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.