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Strategies & Market Trends : The Dead Cat Bounce Theory
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To: Kevin Wang who wrote (1542)6/13/1997 6:44:00 PM
From: Crabbe   of 1836
 
To all, especially the lurkers that are following this column and either can't or just don't want to contribute.

This is not an easy way to make money. The losses almost equal the gains. It can be very stressful. I would suggest if you are thinking of starting that you invest a limited amount. Less than a thousand is too limiting the commissions would be a major drain, minimum 2% per turnaround, but not more than you can afford to take to Vegas or Alantic City.

There is a catch 22 here. If it were easy everyone would do it. If everyone did it, it would no longer be easy. It is just hard enough that most people will not continue in it, but easy enough that with experience you can learn to avoid some of the traps.

Some basics:

The dead cat bounce is on average larger for bigger drops.

The size of the bounce is hughly affected by that days market attitude:

.....If the market is at a bottom the stocks don't even wiggle let alone bounce.

.....If the NASDAQ is euphoric most stocks don't drop very far.

.....If the DOW and NYSE are on a big up day the NASDAQ stocks don't bounce even though they fall a long way.

The higher the price of the stock the easier it is to get in near the bottom.

...but

The higher the price of the stock the lower the percentage rebound.

Earnings shortfalls seem to have the most consistent bounce.

Product loss seems to have little if any bounce.

Over all, for the period of this experiment (this forum), market conditions have been anything but normal market conditions. The NASDAQ averages sat at a bottom for nearly a month, then rose 16% in a month, and finally now at all time highs. The DOW/NYSE has been setting huge daily records day after day after day. I think although I still am not sure that the Dead Cat Bounce does best in a static market. One that has a little but not a lot of movement and one that is neither at all time highs or market lows. A side ways market in other words. If the Dow continues gaining at this unheard of pace I for one will be a bystander next week.

Good Trading, and may all your Dead Cats Bounce.

Rod
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