Dead cat bounce

A dead cat bounce is a short, temporary recovery in the price of a stock (or any asset) that has been falling sharply, before the downtrend resumes and the price falls further. The name comes from a grim joke on trading desks: even a dead cat will bounce a little if it falls from a high enough height, but that does not mean it is alive.

It typically happens after a steep decline, when some investors start buying because the price looks cheap relative to where it was, or because short sellers lock in profits by buying back shares, both of which push the price up temporarily. If the reasons behind the original decline have not actually changed, that buying pressure fades and the price resumes falling, often below its earlier low.

A dead cat bounce can only be identified with certainty in hindsight. In the moment, a genuine recovery and a dead cat bounce can look identical: a stock price rising after a steep fall. The difference comes down to whether the business fundamentals that drove the decline have actually improved, not just whether the price went up.