Free Practice Question
RC · Reading Comprehension
605-655
Short Passage - Science
Reading Passage
One of the strategic principles for success in the stock market is to refrain from having knee-jerk reactions to possibly deceptive fluctuations in the market's or a particular stock's performance. Before reinvesting in a rapidly falling stock, analysts and investors will often wait for the passing of one or more small upward bumps, referred to as "dead cat bounces." The term reflects the somewhat crude idea that even a dead cat will bounce if it falls from a great height. Upticks in a plummeting stock can be caused by short selling, triggered sell-offs, or overly optimistic reactions to changes made by the company, such as replacing an unpopular CEO. Such a small, unimpressive rise is usually followed by another drop-off that surpasses the previous low. While almost exclusively related to the stock market, the term has found occasional use in describing other areas of misleading improvement. Poll numbers for a candidate losing ground near an election sometimes make a brief, illusory surge. In sports, losing teams that make midseason coaching changes sometimes experience a mild surge of energy that translates to one or more wins before the team reverts to form.
According to the passage, each of the following is TRUE of a "dead cat bounce" EXCEPT:
Answer Choices
Correct answer marked belowA
It occurs when a stock shows a small improvement followed by a much greater decline in performance.
B
It only occurs in instances where performance is already showing a rapid decline.
It provides a good opportunity to sell stock at the peak of the "dead cat bounce" before the stock plummets even further.
Correct
D
It is a term that primarily exists to explain a regularly occurring feature of the stock market.
E
It is capable of occurring multiple times within the same stock's downward collapse before the stock's improvement becomes sustainable.
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What it tests
Your ability to understand a passage, its structure, and what the author is really saying. At the 605-655 level, accuracy and speed both matter.
Common trap
Answering from memory or outside knowledge instead of strictly from the passage.
Details
Difficulty
605-655
Type
RC
Category