RE:RE:DEAD-CAT BOUNCE IN THE MAKINGDeadcats are tricky. Again, time them well and you make a nice quick profit.Mistime it, and you end up on the wrong side of the trade.
The tricky part of a deadcat are what metrics to consider, and how much weight to give to each. In no particular order...
1) The severity of the drop in the first place. (This was severe)
2) The news cycle...more news or going into a quiet period. (quiet now)
3) The drying out of the stock at the bottom. (dry)
4) Resistance points on the way up. (identified below
5) Psychology...how "broken" is the stock. (very broken, which in a deadcat scenario can be a positive)
6) External market forces (overall market swings, and the market is very volatile right now.
Typically what happens is you first have the "early adopters". These are the true traders who spot the change, jump in and jump out again at the first resistance, which is about $6.25. The stock has already moved up to this level, and sure enough, you could see some of that resistance point selling taking place. That's fine, and not surprising at all.
If you look at support and resistance points, after the $6.25, it's a fairly clear run to $6.75, and above that, $7.00 Personally, I don't see any deadcat going above the level, unless there are funadamental changes (which I don't think there will be). So it becomes a game of traders coming in, and longs taking a new/bigger position, with most of the selling now washed out...hence, the bounce.
So it becomes a gaime of "odds".
The $6.25 level....100%
The $6.75 level....I would say 70%, based mostly on the severity of the downturn, and two complete days of a massive washout of the stock from $7.00 down to $6.00 There's also been time for any margin calls to now be washed through, so that selling is gone too. This stage of the deadcat tends to be the more "meaty" phase, as a larger pool of people come in thinking the stock is safe. It's not necessarily true, but greed tends to be a be a motivator for buying bravery.
The $7.00 level....I would say about 30% at most. Lucky if there is a little over-extended enthusiasm on the deadcat, but it would be temporary.
The other key thing on deadcat bounces is that the are absolutely dynamic, i.e., different forces come in to play at different times. While different resistance points are noted above, they are at best "markers", and certainly not absolutes. As noted before, deadcats can certainly be playable and profitable. Just know what they are and how to play them.
Caveat. Any comments here about deadcat's have nothing to do with the stock whatsoever. It is only a buying/selling phenomenon that happens when certain criteria are met. The cat may bounce, and often does, but gravity and reality always do set back in.
TheProphetElijah wrote: The sector is definitely due for atleast a technical bounce, plays like HITI and AYR are showing bull flags, while bigger plays like TRUL and CURA are consolidating and bouncing off long and short term technical bottoms. This can time nicely with possible/speculative legislative changes before August and Nov mid terms like Safe Banking. Time will tell.