Beware of dead cat bounce

Most meme coin prices rebounded on Saturday, Dec. 21, after falling for most of the week, with their combined market cap rising by 4.7% to $109 billion.

Shiba Inu (SHIB) price rose by 12.6% to an intraday high of $0.00002397. Bonk (BONK), the biggest meme coin in the Solana ecosystem, rose by 20% to $0.000032. Pepe (PEPE) and other popular meme coins like Dogwifhat and Pudgy Penguins rose by over 15%. 

This rebound happened after a Bitcoin (BTC) plunge from $108,200 to $97,000 triggered a big crash in most altcoins. The total market cap of all cryptocurrencies dropped from over $3.7 trillion to $3.37 trillion.

The rebound is likely due to the US’s encouraging Personal Consumption Expenditure report. The headline PCE, the Federal Reserve’s favorite inflation gauge, softened from 0.2% in October to 0.1% in November. Core PCE dropped from 0.3% to 0.1%, a sign that inflation in urban and rural areas was slowing.

American stocks also reacted positively to the PCE report on Friday, with the Dow Jones, S&P 500, and Nasdaq 100 indices rising by over 1.18%, 1.10%, and 0.85%, respectively.

These numbers came a few days after a hawkish Fed decision triggered a sell-off in risky assets like stocks and cryptocurrencies. The bank slashed rates by 0.25%, bringing the yearly cuts to one percent, and hinted that it would deliver two more cuts in 2024. The last meeting’s dot plot pointed to four cuts.

The Fed justified its hawkish view to the stubbornly high inflation. Recent data showed that the headline Consumer Price Index rose to 2.7%, while the core CPI remained at 3.3%. The bank also suspects that some of President-elect Donald Trump’s policies (i.e., tariffs) will be inflationary.

Shiba Inu, Bonk, and Pepe rise could be a dead cat bounce

Meme coins like Shiba Inu, Pepe, and Bonk also likely jumped as crypto investors bought the dip after they dropped for three consecutive days. 

A potential risk for the ongoing rebound is that this could be a dead cat bounce. A DCB is a situation where falling asset prices stage a brief rebound and then resume the downward trend.

For example, Shiba Inu dropped by 15% on Dec. 9 and by 1% on the following day. It then formed a DCB by rising by 6% on Dec. 11 and then resumed its downtrend, reaching a low of $0.00001855 on Dec. 20.

The other potential risk for these coins, especially Shiba Inu, is that some of them have formed a head and shoulders chart pattern.

An H&S pattern is a popular bearish reversal sign made up of a head, two shoulders, and a neckline, which is at $0.00002280. That is a sign that the coin may continue the downtrend.