By JAMES CHEN Updated June 02, 2022
Reviewed by CHARLES POTTERS
Fact checked by SUZANNE KVILHAUG
What Is a Dead Cat Bounce?
A dead cat bounce is a temporary, short-lived recovery of asset prices from a prolonged decline or a bear market that is followed by the continuation of the downtrend. Frequently, downtrends are interrupted by brief periods of recovery—or small rallies—during which prices temporarily rise.
The name "dead cat bounce" is based on the notion that even a dead cat will bounce if it falls far enough and fast enough. It is an example of a sucker's rally.
KEY TAKEAWAYS
A dead cat bounce is a short-lived and often sharp rally that occurs within a secular downtrend, or one that is unsupported by fundamentals that is reversed by price movement to the downside.
In technical analysis, a dead cat bounce is considered to be a continuation pattern, where at first the bounce may appear to be a reversal of the prevailing trend, but it is quickly followed by a continuation of the downward price move.
Dead cat bounce patterns are usually only realized after the fact and are difficult to identify in real-time.