Have You Ever Seen a Dead Cat Bounce?

byFrenchman88

374 followers

2 years ago

You probably have seen a Dead Cat Bounce, but you didn't realize it. A Dead Cat Bounce is a marketplace (Stocks, Securities, Indices, etc.) term.

A Dead Cat Bounce is a short-lived reversal of the price direction of securities or an index after a prolonged decline (or Bear Market), followed by the continuation of that decline. So stocks may regain some lost ground for a few days but then continue downward.

If, instead, the market begins to recover and rise in value again, continuing in an upward trend, then that would be considered a market recovery.

Dead Cat Bounces in Real Time

And all the cool kids are doing it! Looking at the famous 5 FAANG stocks, we can see dead cats bouncing in each. What are the FAANG stocks, you ask? "FAANG" is a term coined by Investment guru Jim Cramer of Mad Money, a CNBC syndicated TV show. Here is the breakdown below:

• F = Facebook, now known as Meta
  
  • Ticker Symbol META
• A = Amazon
  • Ticker Symbol AMZN
• A = Apple
  • Ticker Symbol AAPL
• N = Netflix
  • Ticker Symbol NFLX
• G = Google, owned by Alphabet
  • Ticker Symbol GOOG

The FAANGS

These are, in most respects, the five most prominent companies in the world, with a market cap of approximately 7 Trillion dollars combined. So, by owning these FAANG stocks, it was said you are almost guaranteed your investment accounts will thrive and grow beyond your wildest dreams. But, of course, there is no sure thing in securities investing.

By the Numbers

Looking at these stocks individually, we can see dead cats bouncing everywhere. For example, Facebook (META) had a high of $382 per share in September 2021, when it started to dip. Today it closed at $126.76 per share. So it was not a straight decline, where at least 1 or 2 primary dead cats bounced along the way. 12/21/2018 was the last time this stock was in the neighborhood, with a price of $124.95.

Amazon (AMZN) is a little different, starting at $184.80 per share in mid-November 2021 slid to $138.87 toward the end of January 2022 before it bottomed out at $102.31 per share around mid-June 2022. After that, it had one more run-up and settled today at $106.67. You have to go back to prior to the pandemic to see those prices again.

Apple (AAPL) is a bit more stable, but it has also seen its share of dead cat bounces since the beginning of this year. With a high of $179.70 in early January 2022, Apple has gone up and down several times, with a low of $130.06 on June 16th, 2022, and currently, it's on a downward slide of one last upward trend that hit $174.55 on August 17th, 2022. AAPL closed at $138.02 today. To get the same range of pricing, you have to go back to around the end of June 2022; before that, it was a year ago, in June 2021.

In mid-November 2021, Netflix (NFLX) closed at a whopping $692.69 per share, and two months later, it had plummeted to $359.70 per share, quite a drop for the streaming giant. But wait, there's more. Netflix had a short-lived dead cat bounce, and then around the first week in May 2022, it plummeted again to $166.37 per share. Since May, it has been bouncing up and down and recently has taken a sideways path and closed today at $229.70. Netflix has been walking sideways since July of this year.

Lastly, Alphabet (GOOG) came in at $150.71 per share in mid-November 2021. It had three primary dead cat bounces but never returned to that $150 high. Today's close came in at $97.05 per share. To see those prices again, we need to go back to the beginning of February 2021.

Bottom Line:

So, are these stocks no good anymore? No, if you study stocks and, more importantly, the companies represented by the stock, you'll know the overall shape the company is in. If a company is showing a trend of bleeding money or profits are continually not matching up with expenses, and it's getting worse over time, it may be time to re-evaluate your position. Sometimes it's wiser to take a slight loss rather than find out the company has just tanked and your stocks are worthless. That is a challenging situation to find yourself in. Once a company files for bankruptcy, it doesn't look good; in the words of Richard Crenna in Rambo, "It's over, Johnny!" There are some accounting things companies entering into bankruptcy can do to get shareholders some pennies on the dollar, but I would not count on it. They have to do a lot of work, and many regulations are required to be followed.

However, in comparison, if the company continues to post excellent numbers, like sales, earnings, etc., but the price per share is going down, you should look at the overall market. Are the indices falling? The Dow Jones Industrials and the S&P 500, where are they at the moment? Can you determine if we are in a market correction or an adjustment? If this is the case and our analysis of the companies we hold stock in is favorable, we don't need to "Sell Everything" in a panic. When the market rebounds, most good-quality stocks will rebound as well. Think of a rising tide that raises all ships. If your ship isn't rising while the market is rebounding, like in the previous paragraph, it may have an irreparable hole in the hull, and then it may be time to make some calculated decisions.

Don't forget that losses aren't always undesirable or something to avoid altogether. For example, if you've had a good year and made some money in options, day trading, or selling off valuable stocks, you may want to have some losses to offset your gains and mitigate your tax liability. Alternatively, there may be conditions where you bought some stock a few years ago that has done poorly lately. Your accountant may advise you to sell them at a loss if you have accumulated a certain amount of gains recently.

Please note: I am not a professional investment counselor; these are only my opinions. Check with a sound investment accountant for guidance.

Thanks for stopping by! Hope you enjoy my post!

Kevin

A.K.A. Frenchman88