Dead Cat Bounce is the ugly name for a standard stock market action.

When a stock has taken a sharp plunge, buyers will sometimes rush in, often not knowing or caring why the stock took this plunge. These players, as they are called, are hoping to make a quick profit on the buy low, sell on a "little bit higher" strategy.

Other traders whose computers are programmed to catch such up movements in stocks that have taken a plunge may likewise buy in, producing a greater upward jump.

A few hours or a few days later the stock is dumped after the small profit is made.

The bounce in the stock and the return to the "floor" is the dead cat bounce.

On September 30, the DOW was at 10,850, Eight trading days later (October 10), it had dropped to 8,451, shedding nearly 2,400 points.

Since that day, the Dow has gyrated wildly, swinging up and down as much as 800 points until yesterday when the DOW closed at 8,519. Yesterday, the DOW had been as low as 8,324.

Even today, from 10:00 to 1:30, the DOW moved from 8,452 to a high 340 points above that, or 8795 and then at 1:00 it was down 400 to about 8,400.

Since October 10, there has been an extended dead cat bounce, or perhaps an extended dead cat dance, as the electrons still left in the market's nervous system twitched.

There is no absolutely no rational trading in this market, there are no market fundamentals to guide traders, no 200 day lines, no break outs.

There is just panic and selling on one rumor and euphoria and buying on another rumor.

Nothing rational happened between 10:00 this morning to make the DOW gain 340 points in an hour only to then 400 within two and a half hours.

Peter B. Hayward

Copyright © 2008 Peter B. Hayward. All Rights Reserved

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