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A dead cat bounce is any sharp rise in prices after a severe decline. In order to have a true dead cat bounce prices must decline again following the bounce in prices. Investors who are fooled by a dead cat bounce and mistakenly believe that a market has turned around may buy into a still-declining market and suffer losses. Short sellers are only too happy to sell stock during a dead cat bounce. In order to recognize the difference between a dead cat bounce and a genuine reversal in the overall direction of the market, it is necessary to evaluate the market as a whole. Investors try to spot a dead cat bounce by relying on market indicators to assess the true nature of the market bounce. However, a dead cat bounce can sometimes fool even a market expert.
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