Dead cat Bounce is an upward bounce and a declining price trend following a dramatic decline. The current bar high is below the prior bar low, leaving a price gap on the chart. Prices recover somewhat and move upward, but the decline is not over. After the bounce finishes, another decline begins. This one is more sedate but prices typically decline another .5% to 2.5%.
Percent of successful formations – 81%
Average event duration – 1 hour
The instrument will make a new low then begin to bounce. The worse the event decline, the quicker the bounce high appears, and the higher prices bounce. Expect a decline to at least the event low. Most of the time, the instrument continues lower by another 1.5%, on average. Avoid all bullish chart formation for in a stock showing a dead cat bounce.