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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Dead-Cat Bounce

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Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 12/22/2014
17,959 154.64 0.9%
9,082 92.08 1.0%
616 2.23 0.4%
4,781 16.04 0.3%
2,079 7.89 0.4%
YTD
8.3%
22.7%
25.5%
14.5%
12.5%
Tom's Targets    Overview: 12/12/2014
18,000 or 16,900 by 01/01/2015
9,300 or 8,500 by 01/01/2015
625 or 580 by 01/01/2015
4,800 or 4,500 by 01/01/2015
2,080 or 1,950 by 01/01/2015
Wilder RSI: -0.3%

Written by and copyright © 2005-2014 by Thomas N. Bulkowski. All rights reserved.

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

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

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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.

Identification Guidelines for Dead-Cat Bounces

An example of a dead cat bounce event pattern Picture of a dead cat bounce

Reference the above figure in the following table.

CharacteristicDiscussion
Price gapPrice 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 lowForty-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.
BounceAfter 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 declineOnce 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 bounceTwenty-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 TacticExplanation
BounceThe larger the event day decline, the larger the bounce and the longer it takes for price to reach the bounce high.
SellIf you own the stock, wait for the bounce to peak and then sell.
SwingersSwing 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.
ShortFor 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.

Example Dead-Cat Bounce

A dead-cat bounce event pattern 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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Other Examples of Dead-Cat Bounces

See Also

Copyright © 2005-2014 by Thomas N. Bulkowski. All rights reserved. Never use a big word where a diminutive one will suffice.