Dead cat bounce

A partial and temporary rise after a sharp fall, followed by a resumption of the fall. The phrase is market slang from the trading floors of the nineteen eighties, and its bleakness is the point: a bounce establishes only that selling paused, not that it finished.

The mechanics behind one are ordinary. A fast decline leaves short positions in profit, and some are closed, which requires buying. Orders resting below the market are filled. Buyers who judged the earlier price too high arrive. All three produce demand that has nothing to do with the reason the price fell, so the rise they cause can end as soon as they are done.

The difficulty is that the term is only ever applied afterwards. While a rise is happening, no measurement separates a bounce inside a decline from the first leg of a genuine reversal. Conventions circulate for telling them apart, usually a retracement threshold or a requirement that a previous high be exceeded, and they are conventions rather than tests: each of them classifies some bounces wrongly, and which ones depends on the market and the period being measured. A commentator naming a dead cat bounce in advance is stating an expectation, not a description.