A plaque remaining from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem.

Above, a 1934 plaque from the Big Apple Night Club at West 135th Street and Seventh Avenue in Harlem. Discarded as trash in 2006.

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Entry from October 27, 2008
Dead Cat Bounce

A “dead cat bounce” is a stock market term for a fake (or short-lived) economic recovery. Cat lore has it that if you throw a cat from any height, the cat will always land on its feet. In the early 1980s, the musical Cats became a Broadway sensation and the humor book 101 Uses For a Dead Cat (1981) by Simon Bond became a bestseller.

In the graphic terminology of the “dead cat bounce,” if you throw a dead cat off of a roof, it will provide a small bounce—but that doesn’t indicate signs of life.  Likewise, a small market uptick after a large drop doesn’t necessarily indicate a greater recovery. “Dead cat bounce” is recorded in print from 1985.

Wikipedia: Dead cat bounce
A dead cat bounce is a figurative term used by traders in the finance industry to describe a pattern wherein a spectacular decline in the price of a stock is immediately followed by a moderate and temporary rise before resuming its downward movement, with the connotation that the rise was not an indication of improving circumstances in the fundamentals of the stock. It is derived from the notion that “even a dead cat will bounce if it falls from a great height”.

The phrase has been used on the trading floors for many years. However the earliest recorded use of the phrase dates from 1985 when the Singaporean and Malaysian stock markets bounced back after a hard fall during the recession of that year. Journalist Christopher Sherwell of the Financial Times reported a stock broker as saying the market rise was a “dead cat bounce”. It has also been used in reference to political polling numbers.

The reasons for such a bounce can be technical, as investors may have standing orders to buy shorted stocks if they fall below a certain level or to cover certain option positions. Once those limits are reached, the buy orders are activated and the sudden rise in demand causes the price of the stock to rise as well. The bounce may also be the result of speculation. Since bounces often occur, traders buy into what they hope is the bottom of the market, expecting a bounce and thereby reaping a quick profit. Thus, the very act of anticipating a bounce can create and magnify it.

A market rise after a sharp fall can only really be seen to be a “dead cat bounce” with the benefit of hindsight. If the stock starts to fall again in the following days and weeks, then it was a true dead cat bounce. If the market starts to climb again after the first short bounce, then the continued rise in price action would be considered a trend reversal and not a dead cat bounce. Since this distinction only becomes obvious in hindsight, the evaluation may vary depending upon the initial and final points of reference.

Dead Cat Bounce
A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.

Ever heard the saying, “Even a dead cat will bounce if dropped from high enough!”?

(Oxford English Dictionary)
dead cat bounce n. Stock Market slang (orig. U.S.) a rapid but short-lived recovery in prices after a sharp fall; a temporary upswing, esp. caused by speculators buying when prices are low and then quickly reselling when they rise; (also, in extended use) a brief improvement, a spurious success.
1985 Financial Times 7 Dec. 11/5 Despite the evidence of buying interest yesterday, they said the rise was partly technical and cautioned against concluding that the recent falls in the market were at an end. ‘This is what we call a “*dead cat bounce”,’ one broker said flatly.
1996 N.Y. Times 21 July F5/5 ‘I’m increasingly suspicious of this rebound… What we don’t want is a dead-cat bounce’when stocks rebound simply because they fell so far so fast.
2001 Washington Post (Home ed.) 3 Oct. C7/3 This is what is known as a ‘dead cat bounce’... If you throw a dead cat against a wall at a high rate of speed, it will bouncebut it is still dead. Likewise, if you debut ‘Inside Schwartz’ out of the enormous ‘Friends’ debut audience, ‘Schwartz’ will do a big numberbut with only about 70 percent lead-in retention, it is still a dead show.

OCLC WorldCat record
101 uses for a dead cat
by Simon Bond
Type:  Book; English
Publisher: New York, N.Y. : C.N. Potter: Distributed by Crown, ©1981.

OCLC WorldCat record
A hundred and one more uses of a dead cat
by Simon Bond
Type:  Book; English
Publisher: London : Methuen, 1982.

OCLC WorldCat record
The 101 uses for a dead cat calendar, 1983
by Simon Bond
Type:  Book : Fiction; English
Publisher: New York, N.Y. : Clarksong N. Potter, 1982.

28 April 1986, Doylestown (PA) Daily Intelligencer, “Bargains may exist in stock issues for energy firms” by Chet Currier (AP), pg. 17, col. 5:
One of the most vivid, if a bit indelicate, word pictures painted by the bears on oil comes from Raymond F. DeVoe Jr. at the investment firm of Legg mason Wood Walker. DeVoe suggests the printing of a bumper sticker reading: “Beware the Dead Cat Bounce.”

‘This applies to stocks or commodities that have gone into free-fall descent and then rallied briefly,” he says.

“If you threw a dead cat off a 50-story building, it might bounce when it hit the sidewalk. But don’t confuse that bounce with renewed life. It is still a dead cat.”

New York (NY) Times
On Language; On the Lam, Who Made Thee?
Published: March 1, 1998
A puzzled zoogoer sends in a clip from The Financial Times about a possible recovery of Asian stocks headlined, with no explanation, ‘’Dead Tiger Bounce.’’

In 1985, the same newspaper quoted Singaporean investment advisers warning of a dead cat bounce: false hopes are stirred when a stock rises slightly after a crash but turns out to be lifeless. This odious variation of a bounce, or temporary upturn, is being applied here to other cats—the ‘’tigers,’’ symbolizing formerly ferocious Asian economies, now turned by adversity into bruised pussycats.

Thus, a temporary rise in the stock of an Asian company that has recently plummeted is a dead tiger bounce. By this analogy, any agreement to limit the fluctuations of currencies of Asian nations will be called the dragon in the tunnel.

OCLC WorldCat record
Dead cat bounce
by Charles Ellik
Type:  Book : Poetry; English
Publisher: Berkeley, CA : Charles Ellik, ©2000.

OCLC WorldCat record
Dead cat bounce / story by Gerard Houarner ; illustrated by GAK.
by Gerard Daniel Houarner
Type:  Book : Fiction; English
Publisher: New York : Space and Time, ©2000.

OCLC WorldCat record
Dead cat bounce
by Damien Owens
Type:  Book : Fiction; English
Publisher: London : Flame, 2001.

OCLC WorldCat record
Dead cat bounce : the skinny on e-vesting
by Gail E Vaz-Oxlade
Type:  Book; English
Publisher: Toronto : Prentice Hall Canada, 2001.

OCLC WorldCat record
Dead cat bounce : a novel
by Stan Sauerhaft
Type:  Book : Fiction; English
Publisher: Bloomington, Ind. : AuthorHouse, / ©2005.

OCLC WorldCat record
Dead cat bounce : a novel
by Norman Green
Type:  Book : Fiction; English
Publisher: New York : Harper, ©2006. 

Posted by Barry Popik
New York CityBanking/Finance/Insurance • (1) Comments • Monday, October 27, 2008 • Permalink

Great post, you explain about “dead cat bounce” in economy recovery very well. This post really helpful for me, I really appreciate that you share it with us.

Posted by Martin l sticker printing  on  08/02  at  01:51 AM

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