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A particularly gruesome, yet oft-used stock/security trading analogy.

A "dead cat bounce" refers to a temporary increase in value some stocks may experience a few days or weeks before the final collapse of the firm in question.

For example, if Enron stock tumbled from $90 a share to $5 a share, then shot back up to $8 a share, some optimistic investors may see this as a sign that the company is regrouping and making positive steps back toward double digits. If the stock then falls to $0.0003 a share, the investors can then be said to have made the mistake of "losing one's money on a dead cat bounce."

Presumably, the name "dead cat bounce" comes from the idea that if a cat plummets from a high enough distance, then bounces upward off the ground, that final movement shouldn't be seen as evidence that the cat is still alive. Similarly, if a stock plummets in value and then experiences a last-minute jump in price, one should not assume that the company is still "alive" (i.e. viable).

Stock analysts and brokerage firms will often attempt to warn their investors if they believe an increase in a certain security's value is a "dead cat bounce" rather than a legitimate comeback.

As a former Wall Street trader, I feel I need to explain this proverb in detail, and add a little bit of meat and background to the phrase up above

First, sociological entymology. The proverb actually states "Even a dead cat bounces once if you drop it from a high enough ledge". It is one of a series of colorful Wall Street proverbs the old timers tell the new fish in a brokerage form in order to initiate them into the idea that we are all doing something, new, mysterious, communal, and mystical, instead of trying to **** each other while making as much money as possible. Other Colorful Wall Street Phrases include "He who sells what isn't hisn', must buy it back or go to prison", and "In the long term, we are all dead"...These are generally told to the new young broker with as much solemnity as an Aborigine elder telling the younger people in the tribe that We are all descended from the great anteater.

Second: Why does a dead cat bounce? This needs to be explained psychologically: essentially, what Wall Street consists of is a bunch of some really bright people in front of computer monitors taking money away from stupid people in front of computer monitors. (Maybe this is why we got along so well with Silicon Valley engineers during the internet bubble). These people monitor various stocks in a constant attempt to outwit one another by buying something which is too cheap or selling something too expensive to some poor anonymous sucker on the other end of the screen. They rely on their intelligent ability to remain calm in the face of emotions that confront most people when parting with their money, namely greed and fear. (Using someone else's money to trade certainly helps this process).

When a stock like Enron collapses, there are people who immediately attempt to buy up the collapsed company cheap on the grounds that the market will generally psychologically overreact to bad news as the emotion of greed fades away and fear kicks in. In general, the greater the amount of greed that was present in the overinflated stock price before the collapse, the higher the amount of fear as it begins to fall. (There is some law of psychological conservation of energy at work here, but psycholgists have yet to explain it.) Therefore, the market will then overreact to whatever bad news has happened to affect the price, and people will want to get rid of the stock at any price.

When this happens, the clever young people who specialize in this kind of thing (called, charmingly, Vultures, or even more charmingly, Bottom Feeders), will buy up the stock immediately, EVEN IF THEY DO NOT KNOW ANYTHING ABOUT IT, on the grounds that everyone else is certainly stupid and is clearly overreacting.

Sometimes, the people who do this make money doing it, and then they look like geniuses to everybody who lost money; generally, they lose money, because when a stock collapses THAT badly, the company is normally truly dead. In order to warn their bright and younger colleagues not to do this, they are told that even a dead cat, etc.

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