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Dead Cat Bounce

November 14, 2007

Paints a horrible picture, doesn’t it? You may have known what this phrase means for a long time, and if not, you may have heard it today. On the radio on the way home, the newsman reported that stocks had a recovery today, “deaceased feline or otherwise.” It took me a minute to understand what he was talking about.

A dead cat bounce is when stock prices jump up after a significant decline, only to continue to fall again after the recovery. Supposedly it comes from the idea that even a dead cat will bounce, if it falls far enough down. Well that’s an unpleasant thought!

Why do these bounces occur? Wikipedia suggests that there are at least two factors coming into play. Some investors might have standing orders to buy certain stocks if they fall below a certain level. Other investors might speculate that it is the bottom of the market, so they buy hoping to make a profit.

The only way to tell the difference between a dead cat bounce and a recovery from the bottom is hindsight. So what do you think? I’d love to think that today represented a recovery, but in reality I think we haven’t seen the bottom yet.

I found a little note at the end of the Wikipedia entry amusing: “More recently, the term has been used colloquially during extended drinking binges to describe the apparent recovery of individuals previously thought “out-of-commission”, only for them to quickly return to sleep, vomit etc.” Ah, college.

By the way, thank me for not including an image with this post!

One Comment leave one →
  1. ispf permalink
    November 16, 2007 5:02 am

    Thank you, for not including an image with the post 🙂

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