A Dead Cat Bounce is a temporary, short-lived recovery of asset prices from a prolonged decline or a bear market that is followed by the continuation of the downtrend. Frequently, downtrends are interrupted by brief periods of recovery—or small rallies—during which prices temporarily rise. This phenomenon gets its name from the idea that even a dead cat will bounce if it falls far enough and fast enough.The reason for this pattern is fairly simple: as investors become increasingly pessimistic and sell off their assets, there can be a moment where prices reach such low levels that they become attractive to buyers looking to pick up stocks or other assets on the cheap. Once these buyers enter the market, prices may briefly rebound before continuing their downward trend as sellers again outnumber buyers.It's important to remember that while dead cat bounces can provide short-term relief for those who are watching their investments plummet, they should not be mistaken for signs of an impending market turnaround. In fact, most often than not rebounds following extended declines are just brief pauses in an overall downward trend and it's best not to count on them when making investment decisions.
