Dead Cat Bounce Meaning: What Is a Dead Cat Bounce?

In financial markets, a dead cat bounce pattern describes a short-lived but sharp price movement increase in an otherwise downtrend price pattern. A dead cat bounce indicates a market or individual company’s stock price is in a bear market, in which the price of a stock lowers. This short price increase might result from oversold assets or short positions clearing. Dead cat bounces represent a continuation pattern, not a reversal—the upward movement might initially seem promising but will shortly reverse again.

The Wall Street term “dead cat bounce” comes from the idea that even if a dead cat drops from a great height, it might still bounce upward a little before descending back down. Other phrases to describe this brief resurgence in an overall pattern of decline include “bear market rally,” “sucker rally,” and “bull trap.”

Due to market volatility, dead cat bounces can be challenging to identify in real time. Financial traders often mistake dead cat bounces for bullish market trends, but longer-term chart patterns reveal the change in price action is a blip. In hindsight, technical analysts can determine the short-term increase is part of an overall bear market.

On a chart, dead cat bounces are relatively easy to identify. First, look for a bear market, or one in which prices are steadily falling. Then, within that downward trend of a few weeks or months, look for sudden, sharp increases where the price quickly rises for a few days. After that temporary recovery, you will see the price plunging again, with the stock price falling as soon as it grew. The price will continue to fall as part of a continuation pattern in the bear market.

Dead cat bounces are usually a part of a more significant bear market that might exist for a few months or years during periods of greater economic volatility. During the 2008 recession, the world was in an economic downturn and stock prices fell sharply. In that downward trend, there were a few dead cat bounces that showed signs of financial promise but were not long-lived.

In late March 2020, traders’ portfolios plunged toward new lows because of the COVID-19 pandemic. After a few weeks of steep decline, some companies saw a brief surge in their stock prices only to see the downward continuation pattern resume after a few days of rising prices.

Get the MasterClass Annual Membership for exclusive access to video lessons taught by business luminaries, including Richard Branson, Kris Jenner, Geno Auriemma, Robin Roberts, Chris Voss, Sara Blakely, Daniel Pink, Bob Iger, Howard Schultz, Anna Wintour, and more.