Price Patterns - Upside Hype is Followed by Downside Reality

From time to time investors bid up the price of a stock in a unchecked frenzy. Such was the case with Sirius Satellite Radio (SIRI) from January 1997 to March 2000 when SIRI climbed from $4 to $65 on the expectation that almost everyone who drove a car to work would want satellite radio.Then investors wised up and realized that only a small percentage of commuters would pay for in-car entertainment. The bubble burst and when the selling ended in March 2003, SIRI was at forty cents. SIRI jumped from $3 to $9 in late 2004 after Sirius signed a five-year contract with radio personality Howard Stern.

The percent returns chart shows the 1,698,307 (44.03%) profitable buy and sell combinations (based on daily closes from January 3, 1995 through January 13, 2006) in green and the 2,158,946 (55.97%) unprofitable ones in red. The large green area in the back left portion of the chart are the profitable returns for the hyped upside. The large red area represents the unprofitable buy and sell combinations for the reality downside. The green portion in the front right portion of the chart are the profitable buy and sell combinations for the Howard Stern upside.

So the net effect of the hype and the ultimate collapse of the stock was approximately equal proportions of winning and losing investments.

The winners and losers map looks straight down at the percent returns and shows the 1,698,307 profitable buy and sell combinations (winners) in green and the 2,158,946 unprofitable ones (losers) in red.

Posted January 16, 2006.