As of 04/19/2021
  Indus: 34,078 -123.04 -0.4%  
  Trans: 14,799 -120.71 -0.8%  
  Utils: 921 -2.88 -0.3%  
  Nasdaq: 13,915 -137.57 -1.0%  
  S&P 500: 4,163 -22.21 -0.5%  
YTD
 +11.3%  
 +18.3%  
 +6.5%  
 +8.0%  
 +10.8%  
  Targets    Overview: 04/15/2021  
  Up arrow34,800 or 32,900 by 05/01/2021
  Up arrow15,200 or 14,000 by 05/01/2021
  Up arrow950 or 885 by 05/01/2021
  Up arrow15,000 or 12,900 by 05/01/2021
  Up arrow4,400 or 3,900 by 05/01/2021
CPI (updated daily): Arrows on 3/25/21
As of 04/19/2021
  Indus: 34,078 -123.04 -0.4%  
  Trans: 14,799 -120.71 -0.8%  
  Utils: 921 -2.88 -0.3%  
  Nasdaq: 13,915 -137.57 -1.0%  
  S&P 500: 4,163 -22.21 -0.5%  
YTD
 +11.3%  
 +18.3%  
 +6.5%  
 +8.0%  
 +10.8%  
  Targets    Overview: 04/15/2021  
  Up arrow34,800 or 32,900 by 05/01/2021
  Up arrow15,200 or 14,000 by 05/01/2021
  Up arrow950 or 885 by 05/01/2021
  Up arrow15,000 or 12,900 by 05/01/2021
  Up arrow4,400 or 3,900 by 05/01/2021
CPI (updated daily): Arrows on 3/25/21

Bulkowski on The Price Mountain Trap

 

Initial release 3/11/2021.

 

Price Mountain Trap: Overview

Picture of the micron technology on the monthly scale.

A price mountain is just like it sounds. Price makes a substantial rise and then reverses, leaving a peak on the price chart.

Shown on the right is an example of a price mountain. The chart is on the monthly, linear/arithmetic (not semi-log) scale. Price forms a tall peak that the stock hasn't surpassed yet (as of March 2021).

The trap for investors is to look at a chart like this and believe price will rise back to the old high. It's been two decades since the stock's high 97.50 in July 2000 and the stock hasn't exceeded it yet. If you bought near the peak, more than two decades is a long time to wait to get your money back.

An updated study (March 2021) of price mountains says that it takes a median of 5.4 years to exceed the peak of a price mountain. In 23% of the cases, price has not exceeded the peak yet, so the results understate the time.

Let's look at some examples.

 

Top of page

Price Mountain Trap: Examples

1 / 3
Price mountain trap in Intel

In August 2000, during the height of the technology bubble, Intel reached a high of 75.81. That's up from the June 1998 low of 16.42, so the stock made a massive move higher.

In 2020, the stock made it up to 69 and change. Someone was unlucky enough to have purchased the stock at 75.81 and they are still losing money almost 21 years later.

Have you ever said, "I'll just wait to get my money back." That wait can be years: 7 is the average.

Next slide: Another example
2 / 3
Price moutain trap in Micron Technology

This is the same chart as shown in the overview.

Micron shows two price mountains, A and B. In 1993, the stock was trading below $2 a share. Two years later, it had peaked at 47.38, forming the first price mountain (A).

If you bought in the mid 40s, it would have taken 5 years before you'd get your money back, as the horizontal red line shows.

The second price mountain (B) is even taller. Price climbed to a high of 97.50. Recently, the stock has come close to exceeding the 2000 peak by reaching a high of 95.75.

Next slide: Another example
3 / 3
Price moutain trap in Advanced Energy

This is a more recent example of a price mountain, two of them, in fact.

The one at A shows the stock peaking in mid 2017 at a high of 86.25. Just four months later, the stock made a higher high of 95. Price mountain B took 3 years before price exceeded the peak. My statistics says that's quicker than the average of 7 years to exceed a peak and even faster than the median time of 5.4 years.

The point of these pictures is to serve as a warning that if you overpay for a stock, it can take a long time before you get your money back. Don't fall into the trap of buying high and seeing price drop, then hoping to get your money back. Don't fall into the trap of looking at a chart and saying it reached $x, so it can climb back up their again. It might not or it might take decades to hit your target. Set realistic targets.

The End

Top of page

-- Thomas Bulkowski

See Also

 

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My novels:  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Trading Classic Chart Patterns

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