PRN: Understanding a Dead Cat Bounce in Financial Trading

05/ago/2011 15:41:27 PR Newswire Turismo Contatta l'autore

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Understanding a Dead Cat Bounce in Financial Trading


LONDON, August 5, 2011 /PRNewswire/ --

The second week of July saw European banks recovering slightly after a sharp bearish movement over the last 4 months. RBS, Barclays, Lloyds and UniCredit all saw positive movement, with rises ranging from 5% to 10%. While some traders saw this as a sign the sector may finally be recovering, others saw a potential "dead cat bounce."

The Dead Cat Bounce

The term "dead cat bounce" comes from the idea that "even a dead cat will bounce if it falls from a great enough height." The phrase has long been used on Wall Street and financial trading in general to describe a short rise in the price of a declining stock, which then continues to decline past the prior low.

Because its signs could also indicate the beginning of a reversal pattern, a dead cat bounce can only be recognised for certain with hindsight. Whether the European banks ultimately continue to recover remains to be seen and for traders the bottom line must be to proceed with caution.

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