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Dead Cat Bounce (DCB)

Dead Cat Bounce (DCB)

Dead Cat Bounce (DCB) is a term for a failed rally after a sharp decline. The DCB is most profitable and more easily recognized after a large downward breakaway gap or downward breakaway spike. The sudden downward motion is is called an event decline because it usually occurs on an event such as a bad news announcement. It lasts just a few days and usually begins a longer-term downward price trend. The DCB’s characteristics include a short rally of several days up to two weeks following the initial bottom from the sharp initial news event sell-off. Ideally, the rally should follow an event decline of over 20%. Normally, the larger the first decline, the higher the bounce.

Source: Kirkpatrick, Charles and Dahlquist, Julie. Technical Analysis: The Complete resource for Financial Market Technicians; (c) 2007.

 

Inverted Dead Cat Bounce (iDCB)

Identification Guidelines

Characteristic Discussion
Price Rise Look for an event that causes price to jump at least 5% but it can be 20%, 50%, or even higher. Avoid those stocks with takeover rumors as they tend to stay high or move even higher.
Higher High Price typically moves higher the day following the event.
Decline After that, price tends to decline.

“Price makes a dramatic rise, from 5% to 20% or more, before declining at a more leisurely rate. ”

Source: The above chart and text are quoted from http://thepatternsite.com/idcb.html. This text is copyright protected by Tom Bulkowski. ThePatternSite.com has nearly 500 pages of FREE trading tips and information, with NO registration process, and has over 70,000 visits monthly.