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. ”
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