Dead Cat Bounce
A plunging price briefly rebounding before falling again — a phrase for a temporary bounce that is not a real recovery.
In plain terms
It comes from the grim saying "even a dead cat will bounce if it falls from high enough." It likens a plunging price's brief rebound to merely a bounce, not truly coming back to life.
After a big drop, a rebound sometimes appears as people briefly buy thinking "did it fall too far?" But if that is not the bottom, it soon falls again, and this temporary rebound is a dead cat bounce.
What it tells you
A dead cat bounce reminds you that "a rebound is not a recovery." A brief rebound in a downtrend is hard to tell from a real trend reversal, and you often only realize "that was a dead cat bounce" in hindsight.
So when a rebound appears after a plunge, whether it is a recovery that bottomed or a brief bounce is hard to call from a single rebound.
Formula
dead cat bounce = a temporary rebound within a downtrend followed by another fall (a temporary bounce, not a trend reversal)
What high or low means
Whether a rebound is a temporary bounce (dead cat) or a real recovery reveals itself over time, by whether volume and the following trend hold. One rebound cannot tell you.
If worsened fundamentals (results, financials) caused the drop, a rebound while that cause remains may be a temporary bounce.
Hopping on a dead cat bounce thinking "it fell a lot, so it'll rise on a rebound" is risky. If that rebound soon fades it can lead to a bigger loss. Look at the reason for the rebound (supply-demand or fundamental improvement).
A dead cat bounce is a phrase clear only in hindsight. Declaring "this is a dead cat bounce" in real time is essentially a guess.
This term is closer to slang describing market price flow. It is best seen as background for understanding market news.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Dead and other financial metrics alongside the sector average.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.