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Experts warn: do not rely on dead cat bounces in the current market


The bags tried to rebound strongly on Tuesday after Monday's hit … and ended up collapsing again. That is, it was what is known colloquially in the markets like 'bounce of the dead cat'. And it shows that, in a market with this volatility, rely on rebounds beyond the very short term -which is what most aggressive investors take advantage of- can be deadly. There is another saying that defines this situation: 'Take a knife on the fly'.

For now, most analysts prefer not to get too wet and just talk about the high volatility we face and we will have to face in the future. But they are more as regards uncertainties, problems and continuity of falls than those who consider that the markets have already touched down And it's time to enter. Yes, some, like Bankinter, they see that capitulation in the bags very close: "March, recovery, and April, rebound", they predict.

Among the most pessimistic is Neil Wilson, director of analysis of Markets.com, which recognizes that battles like Monday, added to the expectations of stimuli by different organizations, suggest that the horizon could be cleared and that things can only improve. "However, the Coronavirus news is not improving and European countries are on track to record an evolution similar to that of Italy, "warns Wilson, who believes that any bounce will have a short life.

"Investors are licking their wounds and there may be a calm after the crashes, but it will be a short rebound in the face of strong oversold levels, not a significant turn, "says Wilson." The stimuli are coming, but reality worsens at times, "he emphasizes.


Naeem Aslam, head of analysis of the British firm Avatrade, he also talks about 'bounce of the dead cat' and believes that, after any upward push in the markets, "the powerful trend will take control again, which means that the shares will probably continue their downward movement. "

Aslam stresses that "the situation with the virus is still terrible." "Productivity is low because workers still do not work and consumers don't spend because they don't feel safe in public places. The economic figures of China and the US are destined to reflect horrible readings and investors will not like it, "he warns.

Faced with this situation, everyone is waiting for the European Central Bank (ECB) and to the Bank of England (BoE), which hold their monetary policy meetings this Thursday and next March 26, respectively. Even so, the feeling is that, Whatever you do, your measures will only serve as a very short-term relief. "The medicine of the central banks is failing", they recognize from BofA Merrill Lynch, and remember the little impact that has had the cut of types of 50 basic points of the Federal Reserve (Fed).

Of course, it is also true that Investing in the big falls is how you earn the most… if it is done near the ground, you never know when it will arrive. Now, to play this dangerous game you have to have nerves of steel and be willing to assume losses (and it is appropriate to set a rigorous 'stop loss').

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