As of 09/18/2020 Indus: 27,657 -244.56 -0.9% Trans: 11,432 -120.44 -1.0% Utils: 798 -12.86 -1.6% Nasdaq: 10,793 -117.00 -1.1% S&P 500: 3,319 -37.54 -1.1% YTD -3.1% +4.9% -9.2% +20.3% +2.7% Targets Overview: 09/14/2020 or 26,700 by 10/01/2020 29,400 or 26,700 by 10/01/2020 or 10,600 by 10/01/2020 11,750 or 10,600 by 10/01/2020 or 775 by 10/01/2020 845 or 775 by 10/01/2020 or 10,400 by 10/01/2020 11,800 or 10,400 by 10/01/2020 or 3,200 by 10/01/2020 3,600 or 3,200 by 10/01/2020 on CPI (updated daily):on 8/18/20

As of 09/18/2020 Indus: 27,657 -244.56 -0.9% Trans: 11,432 -120.44 -1.0% Utils: 798 -12.86 -1.6% Nasdaq: 10,793 -117.00 -1.1% S&P 500: 3,319 -37.54 -1.1% YTD -3.1% +4.9% -9.2% +20.3% +2.7% Targets Overview: 09/14/2020 or 26,700 by 10/01/2020 29,400 or 26,700 by 10/01/2020 or 10,600 by 10/01/2020 11,750 or 10,600 by 10/01/2020 or 775 by 10/01/2020 845 or 775 by 10/01/2020 or 10,400 by 10/01/2020 11,800 or 10,400 by 10/01/2020 or 3,200 by 10/01/2020 3,600 or 3,200 by 10/01/2020 on CPI (updated daily):on 8/18/20

Bulkowski on the Dead-Cat Bounce Chart Pattern

For more information on this pattern, read Encyclopedia of Chart Patterns Second Edition , pictured on the right, pages 829 to 843. That chapter gives a complete review of the chart pattern, compared to what is described below.

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-- Tom Bulkowski

$ $ $

The numbers cited in this article are based on hundreds of perfect trades. See the glossary for definitions.

The dead-cat bounce is the name of this event pattern. Price makes a dramatic drop, averaging 30%, before bouncing only to resume the decline at a more leisurely rate.

Which industries are more likely to have stocks that dead-cat bounce? For the answer, click here.

Dead-Cat Bounces: Identification Guidelines

Reference the above figure in the following table.

Characteristic Discussion Price gap Price usually gaps downward, closing 15% to 70% lower than the prior day. The average event decline from prior close to trend low is 31%. Trend low Forty-six percent make a lower low the next day, 17% continue lower the next day, then 9%, and then 3%, respectively. From the event day to the trend low averages 7 days. Bounce After the event day decline, price bounces. Twenty-two percent will close the gap during the bounce phase, 38% will close it in 3 months, and 58% will close the gap in 6 months. The average bounce height from event low to bounce high is 28% and takes 23 days. Post bounce decline Once the bounce completes, price resumes declining, averaging 30% from the bounce high to post bounce low in 49 days. This places price an average of 18% below the event low 67% of the time. Second dead-cat bounce Twenty-six percent will have a second dead-cat bounce measuring at least 15% within 3 months, and 38% will dead-cat bounce within 6 months.

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Dead-Cat Bounce: Trading Tips

I released a trading setup based on new research using a dead-cat bounce that may interest you.

Trading Tactic Explanation Bounce The larger the event day decline, the larger the bounce and the longer it takes for price to reach the bounce high. Sell If you own the stock, wait for the bounce to peak and then sell. Swingers Swing traders can buy near the event trend low and ride price upward until it peaks in the bounce phase. Only try this if the event day decline is a large one, say over 30%. Event losses (from the close the day before the event to the trend low) above the median 28% decline had bounces averaging 35% in 25 days. Those below the median bounced 22% and took 20 days. Short For experienced traders, short the stock at the top of the bounce and ride price lower. Expect price to drop to at least the event trend low.

Dead-Cat Bounce: Example

The above figure shows an example of a dead-cat bounce.

On July 5, 2001, a broker issued a report that said Amazon.com would beat the consensus estimate for earnings. It didn't. When Amazon.com announced earnings results on July 23, they were below expectations. Price gapped open and closed 25% lower. The next day, price made a lower low and then started a recovery. It bounced upward for about a week and then turned down. When price finally began a recovery, it had bottom 66% below the close the day before the earnings announcement.

-- Thomas Bulkowski

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Dead-Cat Bounce: Other Examples

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