what does a dead cat bounce tell you 
a dead cat bounce is a price pattern used by technical analysts it is considered a continuation pattern where at first the bounce may appear to be a reversal of the prevailing trend but it is quickly followed by a continuation of the downward price move it becomes a dead cat bounce and not a reversal after the price drops below its prior low frequently downtrends are interrupted by brief periods of recovery or small rallies when prices temporarily rise this can be a result of traders or investors closing out short positions or buying on the assumption that the security has reached a bottom a dead cat bounce is a price pattern that is usually recognized in hindsight analysts may attempt to predict that the recovery will be only temporary by using certain technical and fundamental analysis tools a dead cat bounce can be seen in the broader economy such as during the depths of a recession or it can be seen in the price of an individual stock or group of stocks short term traders may attempt to profit from the small rally and traders and investors might try to use the temporary reversal as a good opportunity to initiate a short position similar to identifying a market peak or trough recognizing a dead cat bounce ahead of time is fraught with difficulty even for skilled investors in march 2009 for example economist nouriel roubini of new york university referred to the incipient stock market recovery as a dead cat bounce predicting that the market would reverse course in short order and plummet to new lows instead march 2009 marked the beginning of a protracted bull market eventually surpassing its pre recession high examples of a dead cat bouncelet s consider a historical example stock prices for cisco systems peaked at 82 per share in march 2000 before falling to 15 81 in march 2001 amid the dot com collapse cisco saw many dead cat bounces in the ensuing years the stock recovered to 20 44 by november 2001 only to fall to 10 48 by september 2002 fast forward to june 2016 and cisco traded at 28 47 per share barely one third of its peak price during the tech bubble in 2000 a more recent example is the price action in the market following the onset of the global covid 19 pandemic in the spring of 2020 between the week of feb 21 and feb 28 2020 u s markets lost around 12 as headlines began to hit and panic set in the next week the market rose 2 giving some people the impression that the worst was over but this was a classic dead cat bounce as the market subsequently fell an additional 25 over the next two weeks only later during the summer of 2020 did markets recover limitations in identifying a dead cat bounceas mentioned above most of the time a dead cat bounce can only be identified after the fact this means that traders that notice a rally after a steep decline may think it is a dead cat bounce when in reality it is a trend reversal signaling a prolonged upswing 