3D Surface Plot of Returns: Bubble Price Pattern for Intel
Investors and traders buy stocks on the price upside because most buy and sell combinations are profitable as prices rise. When prices rise rapidly in a short period, a bubble usually forms topped with an unsustainable peak followed by a price collapse where prices decline very rapidly.
The following 3D surface plot for Intel (INTC) displays the pattern of monthly percent returns for the 7,260 returns based on 121 monthly closes from January 1995 through January 2005, a period in which prices rose steadily from January 1995 until they peaked in August 2000 forming a price bubble. Prices then crashed and bottomed in September 2002, down 81%.
Each of the 4,977 (68.55%) profitable returns is shown in green and the 2,283 (31.45%) unprofitable returns are red. Even for a stock that crashed in price, more than two thirds of possible returns were profitable.
Note: Each return is computed using its unique buy and sell date and prices where percent return = ((Sell price - Buy Price) / Buy Price) * 100.
Interpreting the 3D Chart
The buy axis runs from the back (1995) to the front (2004 - last buy date is December 2004) on the left side of the chart. The sell axis runs from left (1995) to right (2005) along the front of the chart. The buy axis and the sell axis form the floor of the chart. No trades can occur in the flat green area because the buy date is after the sell date or the sell date is before the buy date. The pattern of positive returns (green) looks like a mountain range whose elevations are directly proportional to the magnitude of the percent returns. The negative returns (red) lie below the floor and appear as shallow scooped-out valleys. The back left corner of the chart is the return for the first buy price and its first sell price.
Returns for specific buy dates are displayed as slices that run from left to right across sell dates. Returns for specific sell dates are displayed as slices that run from front to back across buy dates.
Back Edge Returns
The back edge of the chart displays 120 monthly returns for the January 1995 buy date starting with the February 1995 sell date return (back left corner) and ending with the January 2005 sell date return (back right corner). Read the monthly returns from left to right. All returns are profitable (green). These returns mirror the price path from the start to the end of the price series.
Right Edge Returns
The right edge of the chart displays 120 monthly returns for the January 2005 sell date starting with the January 1995 buy date return (back left corner) and ending with the December 2004 buy date return (front right corner). Some returns are profitable (green) and others are not (red).
Selling at the Peak Returns
The slice of returns with the highest return (1,643%) is in the center of the chart. The slice runs front to back. It displays profitable returns that result from buying at all buy prices before the August 2000 peak and selling at the peak. All returns are green for this slice. And most returns are green for sell dates just prior to and just after the peak date.
Buying at the Peak Returns
The largest area of unprofitable returns (red) located on the front right of the chart results from buying at relative high prices associated with the August 2000 peak. For example, the red returns that run from the peak sell date to the right edge of the chart result from buying at the peak and selling at subsequent lower prices. The surrounding red slices result from buying just prior to or just after the peak.
Selling at the Bottom Returns
The large area of unprofitable returns (red) includes returns resulting from selling at the September 2002 bottom formed after the peak. For example, the longest slice of red returns that run from the front to back results from selling at the bottom. The surrounding red slices result from selling just prior to or just after the bottom.
Buying at the Bottom Returns
The small green area in the front right of the chart includes profitable returns resulting from buying at the 2002 bottom and selling later.
Numerous Small Red Areas
The small red areas along the diagonal of the flat area represent short-term unprofitable returns.
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