GLOSSARY // Market Structure
Dead Cat Bounce
A dead cat bounce is a brief, sharp recovery inside an ongoing decline that fails and gives way to new lows. The mechanics behind the pop are short covering and dip buyers anchoring to recent higher prices — neither of which is the sustained demand a real bottom requires.
Distinguishing a bounce from a bottom in real time is the hard part. Warning signs that the recovery is a dead cat: declining volume as price rises, failure to reclaim a broken support level or key moving average, and a retracement that stalls well short of half the preceding drop. The trap is that percentage gains off a crushed base look dramatic — a 20% bounce after a 40% collapse still leaves the stock deeply broken.
A stock falls from $50 to $30 over three weeks after cutting guidance. It then rallies 20% in two sessions to $36 on fading volume — retracing only 30% of the decline and stalling below the $38 level that used to be support. Two weeks later it prints $24. Buyers of the bounce at $35+ are underwater 30%+; the 20% pop never invalidated the downtrend.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.