finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...

, a dead cat bounce is a small, brief recovery in the price of a declining

stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...

. Derived from the idea that "even a dead cat will bounce if it falls from a great height", the phrase, which originated on

Wall Street Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for ...

, is also popularly applied to any case where a subject experiences a brief resurgence during or following a severe decline. This may also be known as a "sucker rally".

History

The earliest citation of the phrase in the news media dates to December 1985 when the

Singapore Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...

an and

Malaysia Malaysia ( ; ) is a country in Southeast Asia. The federal constitutional monarchy consists of thirteen states and three federal territories, separated by the South China Sea into two regions: Peninsular Malaysia and Borneo's East Mal ...

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...

s bounced back after a hard fall during the

recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...

of that year. Journalists Chris Sherwell and Wong Sulong of the ''

Financial Times The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Nik ...

'' were quoted as saying the market rise was "what we call a dead cat bounce". Both the Singaporean and Malaysian economies continued to fall after the quote, although both economies recovered in the following years. The phrase was used again the following year about falling oil prices. In the

San Jose Mercury News ''The Mercury News'' (formerly ''San Jose Mercury News'', often locally known as ''The Merc'') is a morning daily newspaper published in San Jose, California, in the San Francisco Bay Area. It is published by the Bay Area News Group, a subsidia ...

, Raymond F. DeVoe Jr. proposed that "Beware the Dead Cat Bounce" be printed on bumper stickers and followed up with a graphic explanation. This quote was referenced throughout the 1990s and became widely used in the 2000s. The phrase is also used in political circles for a candidate or policy that shows a small positive bounce in approval after a hard and fast decline.

Variations and usage

The standard usage of the term refers to a short rise in the price of a stock that has suffered a fall. In other instances, the term is used exclusively to refer to securities or stocks that are considered to be of low value. First, the securities have poor past performance. Second, the decline is "correct" in that the underlying business is weak (e.g. declining sales or shaky financials). Along with this, it is doubtful that the security will recover with better conditions (overall market or economy). Some variations on the definition of the term include: *A stock in a severe decline has a sharp bounce off the lows. *A small upward price movement in a bear market after which the market continues to fall. *During the

COVID-19 Coronavirus disease 2019 (COVID-19) is a contagious disease caused by a virus, the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The first known case was identified in Wuhan, China, in December 2019. The disease quick ...

pandemic, the term was used to describe the phenomenon where a person in the hospital with acute symptoms would feel better and see their oxygen levels increase for a short time before a sudden crash resulting in death.

Technical analysis

A "dead cat bounce" price pattern may be used as a part of the

technical analysis In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...

method of stock trading. Technical analysis describes a dead cat bounce as a continuation pattern in which a reversal of the current decline occurs followed by a significant price recovery. The price fails to continue upward and instead falls again downwards and surpasses the previous low. This phenomenon can be difficult to identify at the time of occurrence, and like market peaks and troughs, it is usually only with hindsight that the pattern is able to be recognised.

References

{{technical analysis Financial markets Metaphors referring to cats Technical analysis 1985 neologisms

History

Variations and usage

Technical analysis

See also

References