Dead Cat Bounce

Even dead cats bounce, the saying goes. But what does it have to do with financial markets? It turns out, quite a lot actually.

Dead Cat Bounce in Gold

 

 

Dating back to 2013, the yellow metal truly plunged in two days like there was no tomorrow. Compared to the slide’s momentum, the recovery took quite some time. Though it retraced a sizable part of the slump, the rally was in the end unable to keep its momentum, and stalled. It wasn’t a reversal, and the following chart shows how deeply gold fell before June 2013 was over.

As you have seen, a dead cat bounce is a continuation pattern more than anything else. And little wonder, as it can be found most frequently within the context of a bear market, or marking both a brief and feeble response of the bulls to a remarkable downside move.

Either way, the upside gets reversed, and a new move to the downside follows.