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Is today’s ASX 200 rally a dead cat bounce?

Well, the S&P/ASX 200 Index (ASX: XJO) is certainly having a good week so far. Today, the ASX 200 has closed up 2.30% to 5,113.30 points, which makes it the third day in a row of gains for the index – something that hasn’t happened for over a month.

But a few more pessimistic investors out there are calling these gains a ‘dead cat bounce’.

What is a ‘dead cat bounce’?

The phrase ‘dead cat bounce’ refers to the rather morbid idea that even a dead cat will bounce if it falls from a great height – it’s an old Wall Street turn of phrase. In other words, it means that it’s a temporary correction in a market that is destined to keep on falling.

Now of course, ‘dead cat bounces’ are only obvious in hindsight. We’ve had a few days over the last few weeks where the ASX showed some strong gains, only to be pulled back down by market pessimism. The difference with this one is that it seems to be morphing into a sustained rally, which has prompted the doomsayers to give it this label.

Should ASX investors be worried?

I think that anyone who’s watching the market’s every move in a time like this should take a step back. It’s been a nasty time to be invested in ASX shares over the past month, and I don’t think you will do yourself any favours by obsessing about where the bottom is or if the market’s permanently turning around.

Instead, accepting that significant volatility is here to stay for at least a while is the best way to approach the markets at this point, at least in my opinion. We might have seen the bottom of the markets. But this might indeed be a ‘dead cat bounce’ and further falls await for all we know.

Foolish takeaway

Trying to guess what the market is doing and will do is a sure path to insanity. All we know is what has happened and what is happening now. And right now, I think there are still a lot of ASX companies on sale. So instead of worrying about feline aerodynamics, I think everyone should either be tuning out the noise, or otherwise be worrying about which ASX company to buy next!

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As of 17/3/2020

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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