The Dead Cat Bounce

jumpingcat

My neighbor and I were talking about the markets and the current round of sell offs we are having. My thinking, albeit based on nothing substantial, is that if DJIA closes within 100 points of of 6k or drop below 6k midday we are going to see a decent rally. His response to me was that we are going to see “A Dead Cat Bounce.”  I thought it was a good term, of course I don’t like cats , but after he explained what it meant I think it is an accurate prediction of what we are going to see in the markets:

A Dead Cat Bounce is a market term referring to the value a of stock or the market which has been in a steep decline, at some point people are going to decide it is too good of a bargain and buy. They aren’t buying because they think the market is better or confidence in the world financial system has been restored. They are buying because they feel like they can’t miss this opportunity. It is willy nilly purchasing without totally understanding the economics or financial status of what they are buying. What this leads to is a “False” rally so you see a moderate rise in prices followed by a return to a steady decline. The rally is the bounce.

If you see a rally in the near future, like next week, just keep in mind even a dead cat will bounce if you drop it from high enough.

No cats were harmed in the writing of this article… 😉

Photo: (Worak)

{ 1 comment… read it below or add one }

1 SJ March 12, 2009 at 2:36 pm

“just keep in mind even a dead cat will bounce if you drop it from high enough.”

This was great!

I’ve been thinking in the reverse; since the fundamentals and what not don’t seem to be changing any rise will be shortly followed by massive drops due to people shorting.

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