“Dead cat bounce” is based on the idea that if it falls from a great enough height even a dead cat will bounce.
Charming stuff.
So, when was the last time you tossed a dead cat off a 50-story building?
And what idiot would think a cat hitting the pavement at 50 miles an hour had any hope of surviving?
I have no answers to these important economic questions.
But I can at least say one thing, generally speaking…
When outfits like CNN start printing the words “dead cat bounce” – referring to a false rally within a broader decline – you should be skeptical.
(CNN just fired everyone because they’re so terrible. But I digress…)
Here at TrendLabs, we are “facts only.”
And yes, our composite sentiment index is showing bearishness at 16-month highs.
But the facts say this bull market remains intact. We are looking for stocks to buy, not to sell.
The cat is very much alive.
Let’s cut to the chart…
Roll With the Punches
This is what the S&P 500 looks like this morning:
You can see the decline from the first-quarter highs – that’s the long, red arrow pointing down and to the right.
And you can see the epic rally over the past week. In some market circles, it’s a “dead cat bounce.” In others this kind of price action is called a “sucker’s rally.”
It’s the same basic idea: There’s no substance to support the up-move.
The strength in stocks is only short-term, all the willing buyers are suckers, and the market will roll over and collapse again. Because it’s dead.
The big, long, green arrow pointing up and to the right? Everybody’s wondering whether it’s real.
They’re talking about dead pets and how springy they might or might not be. CNN is saying this is a temporary, short-lived recovery for stocks.
And that’s good news for people like you and me.
Let’s Get To What’s Real
So, was that it? Now we roll over, sit around and wait for a new leg higher?
That’s what a lot of sentiment indicators say. That’s how fund managers are currently positioned. That’s also what retail investors believe.
We know. We have the data. Our key levels – where old resistance is becoming support – are holding.
And we’re taking the other side of this pessimism.
This week we bought some Healthcare stocks. Last week we bought some Financial Technology stocks, or “Fintech,” as the kids call it these days.
Nobody knows anything, least of all CNN.
So all this talk about dead cat bounces and sucker’s rallies is exactly what we want to hear.
This is the kind of divergence we love.
Stay tuned for more on this…
Stay sharp,
JC Parets, CMT
Founder, TrendLabs