What Causes A Dead Cat Bounce?

What Causes A Dead Cat Bounce?

1 Answer

  1. Dead cat bounce could be a result of a lot of activities or we can say there are numerous reasons for this but there are two major or most common causes of it. First, speculation. In order to maintain their positions, speculators buy shares. They believe that the price will go back up soon and think that the stock has reached its low point or that the underlying asset has become undervalued. This can cause a dead cat bounce when enough traders begin to act at the same time. Even if, it isn’t planned, many traders jump on a declining asset at once, it can halt declining prices.
    Second, short sale recovery. It can cause dead cat bounce if traders expect an asset’s price to decline they might short the stock, allowing them to profit off declining prices. When they close out their short positions this, just like buying the stock, will cause its price to rise. Giving it that temporary rise which causes dead cat bounce.

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