What is a dead cat bounce?
A money-making opportunity for traders
Todd Horwitz of the Adam Mesh Trading Group discusses the market rebound.
A dead cat bounce is a short-term recovery in an asset's price that follows a protracted decline.
Long-term slides are often interrupted by temporary rallies as traders who have bet on a decline and think the worst is over cover their positions, causing the price to rise.
In a dead cat bounce, the downward trend will resume because there's no sustained buying interest; the traders who cashed out earlier then make new bets the price will fall further.
Such price action is considered an opportunity for traders who have the wherewithal to identify the short-term behavior. A dead cat bounce can only be identified after the fact.
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The term itself dates to a Wall Street analyst's observation in the mid-80s that a dead cat might bounce if dropped from a sufficiently high building, but that wouldn't mean the feline had come back to life.