Gold and Bitcoin, often viewed as safe-haven assets have wobbled too. In the current market, it’s more difficult to find great stocks to trade and execute your plan…
Stocks are… If you’re itching for more, be sure and checkout the SteadyTrade Podcast. They cover the importance of pattern recognition, and why it’s so important for stock traders.
You cannot know and you risk missing these long-term opportunities by staying on the sidelines. However, what I can say is that REITs are now priced at heavily discounted valuations, they offer high dividend yields, and they continue to grow at a good pace. If a REIT pays a 6% dividend yield, grows at 5% per year, and is 40% discounted relative to its long-term fair value, you don’t have to be a genius to see a path to ~15% average annual returns in the years ahead. Overly optimistic investors may become inclined to purchase shares and bid up the price beyond its true value.
How long does a dead cat bounce last?
A confluence of these factors is likely to result in significant buying pressure, albeit only briefly. We have over 500 five-star reviews from happy members who are already profiting from our real estate strategies. I cannot tell you if we have hit a market bottom or if this is just a dead cat bounce.
The amount of volatility, as measured by the CBOE volatility index, has increased by more than 100% as market participants fear about a recession. Always remember that timing is critical when trading a dead cat bounce. You should therefore short the stock the moment you see the first candle closing below the last low of the downtrend. Once you identify one, you should short when the price action breaks below the last bottom. Today, I think that most REITs are severely undervalued and are set to deliver exceptionally high total returns in the coming years, but few seem to be buying them because prices may or may not drop lower in the near term. A dead cat bounce in investing is a “sucker’s rally.” It can entice investors to put money into a troubled company.
Dead cat bounce
A dead cat bounce happens mostly because of the herd mentality in the market. Therefore, as the price recovers, they hope that a new long-term trend is just getting started. In such a case, a dead cat bounce can happen if the price declines for a day or two and then resumes moving upwards again. Meanwhile, value investors might now find the stock attractively valued and start building new positions while momentum traders see oversold signals beckoning on their charts and prepare to go long. There are the bears who argue that the market has more to drop before it eventually recovers. Dead cat bounces (temporary market recoveries) are common during bear markets and with interest rates set to be hiked again in the near future, the market could face more downside pressure.
However, as they do this, the market is still worried about the main reasons for the decline of the price. In most cases, the people who suffer during a dead cat bounce are usually retail traders. StocksToTrade in no way warrants the solvency, financial condition, or investment advisability ofany of the securities mentioned in communications or websites.
What Is a Dead Cat Bounce in Investing?
Technical factors, such as a short position from many firms, can help in the formation of a dead cat bounce. As many investors buy back their shares to close a short position, the stock receives a temporary increase in demand, driving up the price of the stock. This has the same effect as the short covering where the price receives a short boost.
- The name “dead cat bounce” is based on the notion that even a dead cat will bounce if it falls far enough and fast enough.
- In the current market, it’s more difficult to find great stocks to trade and execute your plan…
- Once you identify one, you should short when the price action breaks below the last bottom.
- Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
- The goal of trying to identify a dead cat bounce is to determine whether a stock or other asset that gains value after a prolonged decline is going to keep increasing in price.
- A dead cat bounce is a term used in financial markets to describe a temporary recovery in the price of a security or stock that has been experiencing a downtrend.
If an investor sees these signs, it is typically a good time to be cautious and not get caught out by a dead cat bounce. While these bounces can provide opportunity, they are not sustainable trends. Investors who lack experience with these should probably be even more cautious when these signs show themselves. Tactics used by market manipulators may be used to temporarily inflate prices in an effort of personal gain. Tactics such as a spreading false rumors or engaging in a pump-and-dump will result in a short-lived increase in price. Finally, you should use several tools to guide you when trading the dead cat bounce.