Financial Word of the Day: Dead Cat Bounce
- Larry Jones
- Sep 30
- 2 min read
Definition of Dead Cat Bounce
A dead cat bounce is a temporary recovery in the price of a declining stock or market before it continues to fall further. It looks like a rebound, but it’s short-lived. The name comes from the grim idea that “even a dead cat will bounce if it falls from a great height.” In other words: don’t mistake a quick uptick for a full recovery.
In Plain English
Imagine a stock that’s been crashing hard. Suddenly, it jumps back up a little. People get excited—“the worst is over!”—but then the stock falls again, often even lower. That short-lived jump? That’s your dead cat bounce.
It’s basically a fake-out that tricks investors into thinking the market is reversing, when in reality, the trend is still heading south.
Quick Example
Let’s say a stock tumbles from $100 to $40. The next week, it bounces back up to $50. Some investors rush in, thinking they’ve caught the bottom. But a few days later, the price sinks further—to $30. That $10 jump wasn’t a recovery; it was just a dead cat bounce.
Why a Dead Cat Bounce Matters
For investors: Falling for a dead cat bounce can hurt. Buying in too soon might mean you’re stuck holding a stock that keeps going down.
For traders: Some see dead cat bounces as short-term trading opportunities—buy low, sell quickly, get out before it sinks again.
For you: Recognizing the difference between a real recovery and a dead cat bounce can help you avoid costly mistakes.
How You Might Hear It in Conversation
“That stock rally yesterday? Don’t get too excited—it could just be a dead cat bounce.”
“I thought the market was recovering, but it turned out to be a classic dead cat bounce.”
Money Takeaway
Markets are emotional. People want to believe the worst is over, so they rush in at the first sign of green. But sometimes patience is the smarter play. If a company or the market as a whole doesn’t have strong fundamentals driving growth, that little rebound may just be the cat bouncing on its way down.
Your Challenge for Today
Think about a time in your financial life where something looked like a recovery—but wasn’t. Maybe you tried to budget better, slipped back into old habits, and then had to start again. The key lesson from a dead cat bounce? Don’t mistake a short-term improvement for long-term change. Solid foundations are what build lasting financial growth.
Comments