Dead Cat Bounce
When a sharply falling stock price bounces briefly and then falls again — a phrase for a temporary jump that isn't a real recovery.
Dead cat bounce = a temporary rebound during a downtrend followed by another decline (a brief bounce, not a trend reversal)
Whether a rebound is a temporary jump (a dead cat) or a real recovery only becomes visible over time, by watching trading volume and whether the subsequent trend holds.
In plain terms
The name comes from the grim saying, "Even a dead cat will bounce if it falls from high enough." A brief rebound in a sharply falling stock price is likened to something that hasn't truly come back to life, only bounced for a moment.
After a big drop, some people buy in thinking "maybe it fell too far," and that can produce a rebound. But if it wasn't the bottom, the price soon falls again — and that temporary rebound is called a dead cat bounce.
What it tells you
A dead cat bounce is a reminder that "a rebound isn't the same as a recovery." A short rebound within a downtrend is hard to tell apart from a genuine trend reversal, and in many cases you only realize "that was a dead cat bounce" after the fact.
So when a rebound appears after a sharp drop, a single bounce isn't enough to determine whether it's a recovery off the bottom or just a brief jump.
Formula
Dead cat bounce = a temporary rebound during a downtrend followed by another decline (a brief bounce, not a trend reversal)
What high or low means
Whether a rebound is a temporary jump (a dead cat) or a real recovery only becomes visible over time, by watching trading volume and whether the subsequent trend holds. One rebound doesn't tell you.
If deteriorating fundamentals (earnings, financials) were the cause of the decline, a rebound that appears while that cause remains unchanged may be a temporary jump.
Riding a dead cat bounce on the idea that "it's fallen a lot, so a rebound means it goes up" carries risk. If the rebound fades soon after, it can lead to larger losses. The meaning differs depending on the reason for the rebound (supply and demand, or improving fundamentals).
A dead cat bounce is a phrase that only becomes clear in hindsight. Declaring "this is a dead cat bounce" in real time is essentially guesswork.
This term is closer to market slang describing price movement. It's background knowledge for understanding market news.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
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.