3.3. JOINING THE 1,000 PERCENT CLUB

When you hear about the great "dot-com bubble market" of 1999 you get the idea that it was just one big, year-long party for stock investors. Nothing could be further from the truth. As Figure 3.5 shows, the first nine months of the year saw the NASDAQ Index chop and slop its way higher in a slow, grinding rally that took the market to new highs in early October 1999. During these difficult months of 1999, the NASDAQ would consistently make new highs and then promptly roll over again. It was very difficult to make progress, and every time a stock began to work it would just as quickly reverse course and shake you out. By mid-October of 1999, the market was not looking all that promising.

While the NASDAQ was at least floundering its way higher in broken stair-step fashion, the Dow Jones Industrials were, by September 1999, making lower lows as they struggled to hold their 200-day moving average in October 1999, as Figure 3.6 reveals. Both Chris Kacher and I had our share of difficulties during that whipsaw environment, and it would be an understatement to say that we had become fairly exasperated with the market by that point. Because of this our tendency was to think that it was likely headed lower. Given the level of frustration we were experiencing as we had been whipsawed to death since early February, it was not hard to take a discouraged point of view. However, if you compare the chart of the NASDAQ (Figure 3.5) to that of the Dow Jones Industrials (Figure 3.6), you will notice the interesting divergence between the two. The steady upside progress of the NASDAQ Index, as evident in the grinding uptrend channel outlined in Figure 3.5, was a critical divergence and a key clue that the next upside move in the market would be led by the smaller technology-oriented stocks, the bread and butter of the NASDAQ Index. The NASDAQ's choppy uptrend divergence in 1999 was nothing less than the bubbling cauldron of the soon-to-be-unleashed dot-com mania that was slowly but steadily coming to a boil under the surface of the market's difficult action.

Figure 3.5. NASDAQ Composite Index daily chart, 1999.: Chart courtesy of eSignal, Copyright 2010

Figure 3.6. Dow Jones Industrials daily chart, 1999.: Chart courtesy of eSignal, Copyright 2010