1999issue C091-4
Dead-cat bounce, rollover, and failed reversals
The archive frames a dead-cat bounce as a violent decline, a later rebound, and then a continuation lower. The rebound usually peaks within one to two weeks and is slow to fill the crash gap. Editorial reading: treat that bounce as a rollover clock and keep a stop-loss on from the first fill.
- A dead-cat bounce is specified as a violent decline, a later rebound, and then a continuation lower, not a one-day washout that immediately reverses.
- The rebound is described as usually peaking within one to two weeks, rounding over, and filling only about one third of crash gaps within three months and about half within six months.
- Illustrated long entries after a collapse or near a yearly high had no stop-loss and no preplanned sell level, then remained open through later lower prices.
- A double bottom or head-and-shoulders bottom that appears within six to nine months after such a crash is treated as likely to fail because the shock's causes are not quickly repaired.
A crash rebound that continues lower
The initiating shock is framed as a single-session drop on the order of 25 percent to 70 percent, after which further damage remains possible.
The pattern is specified as a violent decline, a later rebound, and then a continuation lower rather than a one-day washout that immediately reverses. That sequence is the dead-cat bounce: not an immediate V-shaped recovery.
The event window and the event low
The event window runs from the session before the shock through the last new low. That event low often takes more than one session before the rebound begins.
The event low is the last new low after the shock, once prices stop posting fresh lows and the bounce phase can begin.
The bounce phase and the price gap
The bounce phase is the post-shock rebound. It is described as usually peaking within one to two weeks, rounding over, and failing to quickly refill the price gap that opened during the initial high-volume decline.
Only about one third of crash gaps are described as filling within three months, and about half within six months.
Illustrated entries and the stop-loss
Illustrated long entries after a collapse or near a yearly high had no stop-loss and no preplanned sell level, then remained open through later lower prices.
One illustrated exit used a pre-set stop-loss and was filled one session before a later crash-and-bounce event began.
Editorial note: keep a stop-loss on from the first fill. A stop-loss is a pre-set exit level that bounds the loss before entry and stays in force through the position.
Later reversal patterns while the shock is recent
A later ultimate low is placed on a horizon of three to six months or longer after the main bounce, not on a horizon of a few sessions.
A double bottom or head-and-shoulders bottom that appears within six to nine months after such a crash is treated as likely to fail because the shock's causes are not quickly repaired.
Editorial note: a double bottom is a repeated swing low used as a reversal hypothesis, and a head-and-shoulders bottom is a three-swing reversal structure. While the shock is still recent, both are failed-reversal suspects rather than completed reversals.
All readings on this track · 37 readings
- 1982Head and shoulders as a three-path completion test
- 1984Stock low clusters as a cycle baseline
- 1985Four-phase construction of the head-and-shoulders reversal
- 1989Volume-confirmed reversal patterns, stops, and measured objectives
- 1991The journal as one checklist for taken and skipped trades
- 1991Head and shoulders as a direction hypothesis
- 1991Candlestick body and shadow construction with three-Buddha peaks
- 1992A three-count drill that binds candlesticks, head and shoulders, and entry rules
- 1997Constructing bump and run reversal channels
- 1998Testing reversal formations in bond futures
- 1999Construction first: extra shoulders, the neckline, and the diamond test
- 1999Dead-cat bounce, rollover, and failed reversals
- 1999Evaluating time gaps in bond reversal patterns
- 2000Constructing head and shoulders and double reversal patterns
- 2001Constructing broadening and complex bottoms
- 2001Constructing a slanted head-and-shoulders when the chart is tilted
- 2002Head and shoulders with dominant-cycle timing
- 2002Trendline breaks, right shoulders, and trailing stops
- 2003Confirmation tests for bearish top patterns
- 2003Commodity top hypotheses on a dollar rebound
- 2003A head-and-shoulders test during a bear rally
- 2004Pattern breakouts need a primary-trend filter
- 2004Reading candlestick closes on trendline and neckline tests
- 2004Candle diagnosis needs Western targets and stops
- 2004Head-and-shoulders neckline construction
- 2005A familiar chart condition is a hypothesis, not a completed decision
- 2005A 50-day ceiling and a rising-floor stalemate
- 2006A complete trading plan from philosophy to checklist
- 2006Thin-market head and shoulders with two averages and MACD confirmation
- 2010Head and shoulders as a playback-tested setup
- 2011Turning a head-and-shoulders outline into a breakout hypothesis
- 2011Volume-confirmed head and shoulders on AIG and Citigroup in 2007
- 2013Constructing head-and-shoulders milestone points
- 2013Head-and-shoulders geometry versus the filter stack
- 2013Algorithmic head-and-shoulders construction
- 2018International relative strength as a double-top case study
- 2019Structure invalidation before comfort-stops