Monday, July 19, 2010

Dead Cat Bounce

Dead Cat Bounce
Is The Market Doing A Dead Cat Bounce?

Dead cat bounce is a Wall Street term that refers to a small, brief recovery in the price of a declining stock.

History of Dead Cat Bounce

The term "dead cat bounce" is derived from the idea that "even a dead cat will bounce if it falls from a great height".[2] The phrase has been used on Wall Street for many years. The earliest use of the phrase dates from 1985 when the Singaporean and Malaysian stock markets bounced back after a hard fall during the recession of that year. Journalist Christopher Sherwell of the Financial Times reported a stock broker as saying the market rise was a "dead cat bounce".
[edit] Variations and usage

A short rise in price followed by a price decline of a stock is the standard usage of the term. In other instances the term is used exclusively to refer to securities or stocks that are considered to be of low value. First, the securities have poor past performance. Second, there is no indication of an impending rise in price. Lastly, there is no indication that sustained growth is imminent should a major upward shift occur in the market.[2]

Some variations on the Dead Cat Bounce definition of the term include:

A stock in a severe decline has a sharp bounce off the lows.

A small upward price movement in a bear market after which the market continues to fall.

Technical Analysis of the Dead Cat Bounce

A "dead cat bounce" price pattern may be considered part of the technical analysis method of stock trading. Price patterns such as the dead cat bounce are recognized only in hindsight. Technical analysis describes a dead cat bounce as a continuation pattern that looks in the beginning like a reversal pattern. It begins with a downward move followed by a significant price retracement. The price fails to continue upward and instead falls again downwards, and exceeds the prior low.

Alternate Meanings for Dead Cat Bounce

The Dead Cat Bounce term has also been used in reference to political polling numbers.

By Wikipedia

My Stock Picks This Week

Are short-sells on two companies involved in oil, real estate, and the gulf oil spill. Anadarko Petroleum and St. Joe Florida real estate company. There's a lot of news on both of these right now. Anadarko was involved with BP on the Gulf Oil Spill and St Joe is one of Florida's largest real estate developers and landowners in which oil may or may not be affecting its resorts. Enough said there. Check the news on these companies. Lots of bull and bear commentary on them. I'm selling them, and the stop-loss is tight enough to keep the loss low if they head higher. The best low-risk high-reward swing trades I see this week.

Sell Short Anadarko Petroleum - Ticker APC

Sell Entry: 49.94 to 47.01

Stop-Loss: 52.50 or higher or 8% from your entry price.

Take Profit Areas: 33.62 to 31.36, 25.94 to 24.21

Anadarko Stock Chart

Sell Short St. Joe - Ticker JOE

Sell Entry: 27.04 to 25.13

Stop-Loss: 28 or higher or 8% from your entry price.

Take Profit Areas: 17.58 to 16.33, 11.52 to 10.77

St. Joe Stock Chart

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Click the Anadarko and St. Joes stock charts above for a larger view.