A Dead Cat Bounce is a temporary, short-lived recovery of asset prices from a prolonged decline or a bear market. This recovery is usually a false signal rather than a trend reversal, and the downward trend resumes shortly after, often hitting new lows.

The term originates from the Wall Street adage: "Even a dead cat will bounce if it falls from a great height." It carries a sense of dark humor, suggesting that no matter how bad a company's fundamentals are or how terrible the market conditions are, an asset that plummets will inevitably see some level of technical rebound.

So, why it happens?

This brief rebound is typically driven by two main market behaviors:

• Short Covering: Short sellers buy back shares to close out their positions and lock in profits, which creates buying pressure and drives the price up.
• Bargain Hunting: Some investors mistakenly believe the price has "bottomed out" and rush in to buy what they think are heavily discounted shares.

In actual trading, a dead cat bounce often acts as a Value Trap. In hindsight, it is easy to identify; but in the moment, it is extremely difficult for investors to tell whether it is a true market bottom reversal or just a dead cat bounce. Investors who buy blindly during this rebound can suffer significant losses when the downward trend resumes.