Definition
The term dead cat bounce refers to a temporary increase in a financial market, or individual security, after a sustained decline. Oftentimes, the phrase dead cat bounce refers to the temporary recovery of a security deemed to be of low quality.
Explanation
Financial markets, such as commodities, bonds, and stocks, typically demonstrate an upward or downward trend over time. Secular trends can last as long as 25 years, while primary trends will last for twelve months or more. A dead cat bounce is a secondary trend, which can last from as few as a couple of weeks to several months, and represents the temporary reversal of a bear market or the downward price movement of a security.
A dead cat bounce can only be recognized after the fact. In other words, the upward movement in value must be temporary and the value of the security must ultimately fall below its previous low. A dead cat bounce can occur when investors are closing out a short position in the security, or if enough investors believe the price of a stock has bottomed out.
Related Terms
The term bull market refers to a period of time during which there is an increase in the value of equities traded on a stock market. There is no widely accepted definition of a bull market in terms of duration or magnitude of the increase.
Moneyzine EditorNovember 6th, 2024
The term bear market refers to an extended period of time during which there is a decline in the value of equities traded on a stock market. While there is no strict definition, a decline of 20% or more in a market index would be considered a confirmation of a bear market.Moneyzine EditorNovember 6th, 2024
The term market correction refers to the downward movement of a financial market or individual security. A market correction is classified as a secondary trend, since they are usually short in duration.Moneyzine EditorNovember 6th, 2024
The term market trend is used to describe the upward or downward movement of a financial market over time. Market trends fall into one of three classifications: secular, primary, and secondary.Moneyzine EditorSeptember 20th, 2023
The term market sentiment is used to describe the prevailing attitude of investors towards a financial market or individual security. Market sentiment develops over time, and is based on a large body of information including both fundamental and technical factors.Moneyzine EditorNovember 6th, 2024
