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Dead Cat Bounce



November 13, 2008 – Comments (14) | RELATED TICKERS: SDS , USO , DDM

Well, I got the re-test call correct.  And now we are getting a dead cat bounce.  I like this saying because it implies kicking a cat.  That's funny if it's not your cat. 

Why is this a dead cat bounce, or more properly sucker's rally?  Take a look at what has done the worst the past few months, those across the board did very well today and were leaders in many cases.  Even companies that are impaired, have no prospect for positive earnings surprises or have decimated balance sheets climbed double digit percentages in many cases. 

Also note, we actually did break through the previous lows before computer programs and traders started piling in.  Tomorrow there will be no computer assist and good traders will sell into strength. 

Only some averaging into commodity linked issues and commodities themselves, and a small handful of value/growth plays make some sense.

Don't get sucked in.  This rally will fizzle below the last one and be faster to fall again.  My limits on SDS missed by ten cents (really, I was set at $14, and SDS got to 13.90 while I was at lunch) so I'm just going to hold them through this bounce.  If I can sell a thing or two I have averaged down on, I will.  By option expiration we'll be headed back down.

14 Comments – Post Your Own

#1) On November 13, 2008 at 5:38 PM, johnw106 (< 20) wrote:

This is the sixth time I have seen people calling a dead cat bounce. So we have what three more rallys to get those nine lives killed off?

I love how every one seems to think they can guess the bottom and reconize "false" rallys. Mmmm it also seems that the ones who are shorting eveything under the sun are the ones who scream dead cat the loudest. Hoping to save their own tails I guess.

Dozens have been saying we would be below 6,000 DOW by Haloween. Then it was November 5th. Still above the 8,500 I called for a bottom in September. And I admit mine is a blind guess.

But I love roller coaster rides. I wonder how many people now have bleeding ulcers and are supporting the local pharmacy singlehandedly buying Tum's and anti-depressants? Me I sleep like a baby. Got Jesus? He does a soul good.

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#2) On November 13, 2008 at 5:39 PM, socialconscious wrote:

I always wondered why so many English expressions involve animal cruelty especially injured and dead animal cruelty .i.e "There is more than one way to skin a cat" and" I wouldn't want to beat a dead horse"I digress Great call on the retest KIrkydu and SOOO true on the no earnings suprise and  " and a small handful of value/growth plays make some sense."  I love animals but wrong on the dead cat thing.....The saying implies dropping a cat from a great height because it will bounce even though a cat is not designed to bounce thus the corollary of a" dead cat bounce" is when the primary reason a market is going up is that it has dropped so much from a great height.  All best SC

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#3) On November 13, 2008 at 5:46 PM, lquadland10 (< 20) wrote:

Oh it is just the Wales who want us to get us to invest so they can take more of our money.

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#4) On November 13, 2008 at 5:46 PM, lquadland10 (< 20) wrote:

Oh it is just the Wales who want us to get us to invest so they can take more of our money.

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#5) On November 13, 2008 at 5:47 PM, kirkydu (90.50) wrote:

sorry, I didn't know the saying, but I once kicked a huge alley cat that came at me hissing and spitting and carrying a knife at 3am when I was getting out of my car in my driveway.  It bounced, first off the garage, then off the ground.  At least that's how I remember it.

Hey John, you should see my other posts, i.e. I'm a Yesman.  I haven't been overly bearish, certainly no Roubini- which is a shame because he's been very right if a little early.  I'm not going to call a bottom.  I hope we don't see a 5 handle on the Dow, but it's possible.  Something in the 6000s seems to make sense based on a deeper earnings recession than is currently being priced in, especially after today. 

The re-test call had to du with two things, first fundamentals of earnings expectations, second charts screaming lower low and lower highs for a bit longer.  I hope we are actually starting to move sideways.  I could tolerate that for a year after this stuff, though I've been duing pretty good in the volatility. 

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#6) On November 13, 2008 at 5:55 PM, guiron (38.95) wrote:

I like cats, but my dog doesn't. He thinks "dead cat bounce" is a funny phrase.

As for false rallies, johnw106, I don't think we'll see the financial markets really pick up again until the economy picks up. Right now, the economy doesn't look good for the short term, maybe for a while. We'll find the bottom when the American consumer starts spending again, which may not be until all the toxic debt wipes out all the bubble money of the last 15 years. We're not there yet.

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#7) On November 13, 2008 at 5:56 PM, kirkydu (90.50) wrote:

the Wales??? You mean the Welsh?  Dang them.

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#8) On November 13, 2008 at 6:10 PM, johnw106 (< 20) wrote:

True about the economy. But what about all the people like me who have a job? No credit cards? No car payments? No mortgage?

I havent cut back on spending. I have actually increased spending in certain areas. I know I am not the only one out there who is in good shape money wise. I think a lot of people were just plain scared by all the hype on TV. As Christmas gets closer and they see more money in their pocket from lower gas prices they will go back to spending and retailers will see a better December than what a lot of people think.

And how many that were spooked into selling out their mutual funds now have a nice chunk of change sitting in a bank? They will be tempted to spend some of it on loved ones for the holidays Im sure.

And to be open about this. I do not speculate. And I suck at gambling. I own five broad base index etf's and two stocks. The stocks are large cap utilitys. I wouldnt know where to begin looking for weak stocks to short even if I was inclined to take the risk.

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#9) On November 13, 2008 at 6:21 PM, kirkydu (90.50) wrote:

john, the number of people doing as good as a few years back is down by a significant double digit percentage.  Not sure how big, but I'd venture a guess that well over half the people are worse off now than four years ago, and only around 10-20% are better off.  Any way you slice it, consumption is going to be down until at least summer. 

Enjoy the sales, they'll be the best sales in a long time come the last two weeks of December and into January.  Congrats on earning the bargains.

As for owning a bunch of broad based indexes, I've always argued that does not make sense as you are inherently taking 100% of the risk of the markets.  But if that is your strategy, I'm sure you married it and I'm not going to try to talk you out of her.  At least I hope one of your indexes is a commodity index, something like RJI or DBC.

Remember, it's only gambling if you don't know what you are doing (good for you to recognize that).  Buffet said something like that.

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#10) On November 13, 2008 at 6:42 PM, johnw106 (< 20) wrote:

See thats where we part ways. The only reason for anyone to be worse off if they were not laid off is due to oil.

When oil goes up two things go up in price that drives everything else. Plastics and chemicals. These two directly impact the cost of one thing no one can live without. Food. We had to raise our meat prices ( I work in independent reatail groceries) over the last two years due to one thing. Packaging. The foam trays and plastic wrap kept going up and up. It didnt impact our prices on produce to any great extent but higher chemical cost translates into higher fertilizer costs so produce kept going up. Then you add the increase in fuel costs to that.

The second impact is of course transportation. Its simple math. Cheaper gas equals more money to spend on other things. If they can keep the price of oil down to a reasonable level our economy wouldnt even need a stimulus package. With gas high my customers cut back on non food items. Since gas has come down and we have reduced prices on fresh meat and produce they are back to buying new pans and pots and small appliances etc.

I only hope the price of oil stays below $90.00 for a while. When people have to choose between eating and putting gas in the car to get to work it kind of makes for a bummer day know what I mean?

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#11) On November 13, 2008 at 6:44 PM, guiron (38.95) wrote:

Hey, I'm also in pretty good shape financially, but I'm not going bargain hunting at this exact moment. I bought SKF as a hedge recently in my real portfolio, and it's acting exactly the way I want (bought some financials when the market plunged), but I'm not letting it go for the time being. I will be looking for bargains in electronics and computers after the holidays, however, but for my personal use, not equity purchases.

As for the rest of the economy, job losses are spooky. I agree that people are getting scared and holding their money, but for some (the number increasing every day), they don't have an income anymore. The losses still have to work their way through, and we still don't have a solution for next year's mortgage resets. Paulson just keeps throwing money around, but it's not stopping the bleeding. I'm doing OK and will be looking for bargains sometime in the future (hopefully soon) in the equity markets, but I'm personally socking more away in savings right now, just in case. But it is, indeed, a good time to be employed and not strapped down with debt. I'm optimistic about my own chances, for what it's worth.

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#12) On November 13, 2008 at 11:25 PM, Option1307 (30.63) wrote:


     Even though I haven't been directly affected by this crap either, I think your logic is fundamentally flawed. First off, I do not believe people like you and me to be the majority. I would argue that most Americans have been affected by this crisis, even if only slightly. You have to realize that most people do have massive debts, be it credit cards, autos, houses, etc.This is evidenced by the fact that as a country we have a a net negative savings rate. People simply spend more than they make, i.e. debt.

     While I'm hopeful as you are that this holiday season will not be down right horrbile. I think that this is blind hope. People are losing their jobs, and equally important, are scared that they will lose their job. Read Alstry's post on job loss, or check the latest jonless figures released today. This is as much psycological as anything. Even if people have money in their pockets as you suggested, they will be too fearful to spend it...What if they lose their job, what if, what if...We will see saving rates go up, temporarily anyway. Good overall thoughts though.

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#13) On November 14, 2008 at 12:41 AM, candersoh1208 (81.56) wrote:

you are right. whatever happens tomorrow i just  remind myself that the u.s is going to experience the worst recession since ww2. 
we can't prop up this economy on consumer spending anymore
unemployment will most likely reach 8%, maybe higher.
worse financial banking crisis since the depression
deleveraging is still occuring..
worsening credit crunch
the consensus estimates for 2009 earnings for s&p500 are 15% higher than 2008. what???? and what about credit losses? they will be huge.

i don't believe that all of this is priced into the market. no way.

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#14) On November 14, 2008 at 3:54 PM, kirkydu (90.50) wrote:

good what if post option, couldn't agree more. 

cander, exactly, the E in P/E has NOT been fully factored into pps yet. 

For a brief shining moment a few Fridays ago when we first went under 8000 on the Dow I thought we'd start to become more orderly and less volatile.  Given what I've seen, which is outright denial by investors and their financial sales people this isn't so.  VIX will remain high awhile, Dow WILL have a 6 handle at some point and reality will set in that the leverage that was allowed under the wild deregulation of the 2000s was so out of line that somebody will have to sit in prison awhile- I'd suggest noneother than Hank Paulson who testified mutliple times while chief at GS to keep pushing deregulation and higher leverage for investment banks.  He knew it was a scam or was the biggest financial patsy in history.

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