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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Price Mountains

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Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 01/18/2017
19,805 -22.05 -0.1%
9,141 41.29 0.5%
664 -0.93 -0.1%
5,556 16.92 0.3%
2,272 4.00 0.2%
YTD
0.2%
1.1%
0.6%
3.2%
1.5%
Tom's Targets    Overview: 01/18/2017
19,250 or 20,250 by 02/01/2017
8,800 or 9,500 by 02/01/2017
685 or 630 by 02/01/2017
5,700 or 5,400 by 02/01/2017
2,200 or 2,350 by 02/01/2017
Indus strength: None YTD
Mutt Losers: None YTD
Mutt Winners: None YTD

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

My book, Trading BasicsTrading Basics: Evolution of a Trader book., discusses price mountains starting on page 112 in the section titled, "26. Avoid Price Mountains." I show a picture of the book on the left.

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

 

$ $ $

 

What is a Price Mountain?

Picture of the Nasdaq composite on the 5 minute scale.

A price mountain is just like it sounds. Price makes a substantial rise and then reverses, leaving a peak on the price chart. This article describes statistics on the recovery after a price mountain.

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.

2013 Price Mountain Update

I ran another test on price mountains in August 2013. Here are the details of that test.

I programmed my computer to find price mountains under the following circumstances.

  • Stocks after 1990 only. Few stocks went back that far, too.
  • Stock must double within 3 years.
  • After doubling, stocks must drop by half (no time limit) yet remain above $3 (measured on the day price drops to half of what it was at the peak).
  • No overlapping mountains (when one mountain ends, begin looking for the next).

I found 415 stocks with price mountains which gave me 749 samples. The time for price to reach or exceed the top of the mountain was 6 years. However, 35% of the samples have not exceeded the top of the mountain. Thus, the six years understates the actual value.

This test is different from the ones that follow since it does not bracket time into yearly highs.

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Price Mountain Summary

  • On average, it takes at least six years to top a price mountain. See 2013 Price Mountain Update.
  • It took price 1.3 years (477 days) to exceed the yearly high, on average. See Price Mountains: Time to Make a New High.
  • The longer price trends upward, the longer it will take to recover and post a new high after a decline, on average. See Price Mountains: Bull Run.
  • 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.

Price Mountains: 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 (calendar year) and the date price exceeded that high. It took price 1.3 years (477 days) to exceed the calendar year high, on average.

If you include stocks not yet exceeding the yearly high (out of data), then the average time to exceed the yearly high reaches 1.6 years (598 days). The difference includes those stocks not making a higher high...yet.

Price Mountains: Bull Run

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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 (years)
Recovery
Time (years)
Recovery Time (years) for All Stocks
Including Those not Making New Highs
22.63.1
32.83.3
42.93.6
53.03.7
63.34.0
73.54.5

The 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 (as of the date of the original study).

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.

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.

Price Mountains: Failure to Make New Highs

How many stocks fail to make a new high? The table on the right shows the answer.

Years to
New High
Fail to Make
a New High
138%
219
311
47
54
62

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

 

 

 

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. I've got mnemonic plague.