Bulkowski’s Price Mountains

Click on my books below to take you to Amazon.com. At no cost to you, they pay for the referral and that helps support this site.

Makes a great gift

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 it 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.