As of 08/06/2020
  Indus: 27,387 +185.46 +0.7%  
  Trans: 10,331 +115.68 +1.1%  
  Utils: 829 +3.50 +0.4%  
  Nasdaq: 11,108 +109.67 +1.0%  
  S&P 500: 3,349 +21.39 +0.6%  
YTD
-4.0%  
-5.2%  
-5.7%  
 +23.8%  
 +3.7%  
  Targets    Overview: 07/31/2020  
  Up arrow28,150 or 25,000 by 08/15/2020
  Up arrow10,600 or 9,400 by 08/15/2020
  Up arrow870 or 800 by 08/15/2020
  Up arrow11,300 or 10,200 by 08/15/2020
  Up arrow3,355 or 3,100 by 08/15/2020
CPI (updated daily): Arrows on 6/29/20
As of 08/06/2020
  Indus: 27,387 +185.46 +0.7%  
  Trans: 10,331 +115.68 +1.1%  
  Utils: 829 +3.50 +0.4%  
  Nasdaq: 11,108 +109.67 +1.0%  
  S&P 500: 3,349 +21.39 +0.6%  
YTD
-4.0%  
-5.2%  
-5.7%  
 +23.8%  
 +3.7%  
  Targets    Overview: 07/31/2020  
  Up arrow28,150 or 25,000 by 08/15/2020
  Up arrow10,600 or 9,400 by 08/15/2020
  Up arrow870 or 800 by 08/15/2020
  Up arrow11,300 or 10,200 by 08/15/2020
  Up arrow3,355 or 3,100 by 08/15/2020
CPI (updated daily): Arrows on 6/29/20

Bulkowski's Inverted Dead-Cat Bounce

 

For more information on this pattern, read Encyclopedia of Chart Patterns Second EditionEncyclopedia of Chart Patterns 2nd Edition book., pictured on the right, pages 844 to 854. That chapter gives a complete review of the chart pattern, including tour, identification guidelines, focus on failures, performance statistics, trading tactics, and sample trade. Below is just a sliver of the information contained in the book.

The inverted dead-cat bounce is the name for this event pattern. Price makes a dramatic rise, from 5% to 20% or more, before declining at a more leisurely rate.

 

 

Inverted dead cat bounce event pattern

Inverted Dead-Cat Bounce

Inverted Dead-Cat Bounce: Identification Guidelines

CharacteristicDiscussion
Price riseLook for an event that causes price to jump at least 5% but it can be 20%, 50%, or even higher. Avoid those stocks with takeover rumors as they tend to stay high or move even higher.
Higher highPrice typically moves higher the day following the event.
DeclineAfter that, price tends to decline.

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Inverted Dead-Cat Bounce: Trading Tips

The following is based on tens of thousands of samples covering both a bull and bear market. Since it uses averages, your results will vary. Trade it appropriately for the situation. I have seen a number of cases in which price continues to climb after an event. Thus, a sale after the initial price rise might cause you to miss a substantial upward move. Trade this one carefully.

Trading TacticExplanation
MeasureMeasure the close-to-close price difference from the day before the event to the event day (the day price shoots upward). Then match the percentage rise with the one in the left column below.
5% riseSell the day after the initial rise. Buy back in during week 2 for a rise that lasts through week 4.
10% riseSell the day after the initial rise. Price trends lower thereafter.
15% riseSell the day after the initial rise. Price may bottom on day 3. Buy back in and hold until week 4 when price peaks.
20% riseSell the day after the initial rise. Buy back on days 3 or 11 and sell early in week 2 or week 4. Price trends downward at the end of week 4.

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Inverted Dead-Cat Bounce: Example

Inverted dead-cat bounce event pattern example

The above figure shows an example of an inverted dead-cat bounce event pattern. Price soars by 28%, measured close to close. The company reaffirmed earnings projections for the year and said earnings would be at the high end of the range. A broker downgraded the stock but that did not prevent price from jumping up. Price made a new high a day later and then started a slide back down. Price reached a high of 15 before dropping to a low of 9.95, a decline of over 33%.

-- Thomas Bulkowski

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Inverted Dead-Cat Bounce: Other Examples

See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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