What is a 'dead cat bounce' often characterized by?

A 'dead cat bounce' is often characterized by an immediate price drop followed by a brief rally. This term is commonly used in technical analysis to describe a situation where after a significant decline in the price of an asset, there is a temporary rebound or rally that does not indicate a change in the overall downward trend. The phrase itself metaphorically suggests that even a dead cat will bounce if it falls from a great height, indicating that brief recoveries can occur even in a declining market.

The essence of this term lies in recognizing that such a rally should not be mistaken for a sign of a genuine recovery or a reversal of the market trend, as it is typically short-lived and followed by further declines. Understanding this nuance helps traders and investors make informed decisions rather than getting caught up in momentary price movements that do not reflect the underlying market conditions.