|
Written and copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved.
The longer price trends upward, the longer it
will take to recover and post a new high after a decline, on average. For example, if price
makes a higher yearly high two
years in a row and then declines (fails to make a higher high during the third year), it
will take an average of 3.1 years before price makes a higher high.
The study suggests that the recovery is a long one after a bull run ends. You would do
better investing in stocks that did not have a large price
run-up than waiting for those that did to recover.
Time to make a new high
For this study, I looked at 428 stocks
from as early as 1981 to July 25, 2006, but few stocks covered that entire range.
The data used a minimum of 5,598 samples.
For each year, I found the yearly high and the date price exceeded that high. I
found that it took price 1.3 years (477 days)
to make a higher yearly high, on average.
If you assume that the end of data represents
a new, higher high, then the average time to make a new high reaches 1.6 years (598
days). The difference includes those stocks
not making a higher high…yet.
Bull Run
What about stocks that trend up, as in
the bull run to the peak in 2000? How long does it take a stock to recover and make
a new high?
Up Trend
length | Recovery
time (years) | Recovery time (years) for all stocks
including those not making a new high |
| 2 | 2.6 | 3.1 |
| 3 | 2.8 | 3.3 |
| 4 | 2.9 | 3.6 |
| 5 | 3.0 | 3.7 |
| 6 | 3.3 | 4.0 |
| 7 | 3.5 | 4.5 |
The above table shows that when price makes
a higher high the following year and then drops (that is, no higher high a year
later), it takes an average of 2.6 years before
price reaches the old high. If the upward price trend lasts for 3 consecutively
higher yearly highs, then it takes 2.8 years
to post a new high, on average.
If you assume that the end of data signifies
a new high (that is, it includes all stocks whether they made a new high or not),
then it would take 3.1 years to post a new
high after trending up for 2 years.
This has a major assumption and that being
price making a new high the following year represents a higher trend. Most often,
that is the case. But I didn’t check
to see if a higher low was also made (the common definition of an up trend is a
higher high and a higher low). Nor does this
analysis assume a straight-line run up.
Failure to make new Highs
How many stocks fail to make a new high?
The following table shows the answer.
| Year | Fail to make
a new high |
| 1 | 38% |
| 2 | 19 |
| 3 | 11 |
| 4 | 7 |
| 5 | 4 |
| 6 | 2 |
In words, 38% fail to make a higher high
in 1 year. Nineteen percent fail to make a new high within 2 years. And so on.
-- Thomas Bulkowski
Copyright © 2008-2010 by Thomas N. Bulkowski. All rights reserved. I've got mnemonic plague.
|
. If you buy ANYTHING, they pay for the referral.
on 