March 31, 2000

Less than one year ago we experienced carnage in the


technology stocks similar to what's happening now. It was scary, it was panicking, it was deep and it shook an awful lot of investors out of the market. Since we didn't really have many business-to-business stocks trading around that time, the decline was most evident in the business-to-consumer stocks. Technology stocks really are no different from any other group of stocks: They all go up together, they all come down together and only the strong survive to go back up.

The list of stocks in the B2C area that never came back is too long to list here, but you'd recognize many of the names, beginning with the online brokers and the e-tailing stocks. I doubt it will be any different this time. There will be survivors (hey, the Internet isn't going away!) but as markets have done for as long as they've been around, they will sort out the top tier from all the rest. I have used



as an

example before and I will use it again; it depicts much of what we've seen in this market.

Yahoo!'s Wild Ride
Not enough work at the lows.

First we have the big run-up that began in the summer of 1998, from a low of 16 (split-adjusted) and almost continues in a straight line to about 110 in mid-January 1999. Since it's so long ago, let me remind you that the Nasdaq had a very difficult February in 1999, beginning when


(DELL) - Get Report

reported its first shortfall in earnings; it seemed monumental back then, but you can hardly see it on a chart of the Nasdaq now. In fact,

it now looks like part of a base, not a decline

. Yahoo! participated in that decline in a big way, falling all the way back to 62. I'll do the math for you: that's a 44% drop in a matter of 6 weeks! Sounds scary, doesn't it?

However, no sooner did Yahoo! decline than it went right back up, to a brand new high at 123. But here's the key: It took six weeks to go back up, which means a round trip in 12 weeks. In my opinion, that's too much up and down in too short a time span for anything to be sustainable. In many ways, the Yahoo! chart from last year's first quarter resembles the Nasdaq chart from this year's first quarter: a huge fall followed by a return to the highs, without having done enough work at the lows.

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Back to the Yahoo! chart. From April last year, the stock slid even lower than its previous low, this time to 54, a drop of 55%. Only this slide took a lot longer (five months), and was much more orderly than the previous one. And on its way back up, it took four months to get back to the old high. Hey, this is Yahoo!, not

Goodyear Tire

(GT) - Get Report

. It's a New Economy stock, and it took nine months to form a base! That's what I mean when I say stocks must do more work before they can launch a sustainable rise. Keep in mind, many of these stocks, like the B2C stocks before them, will never see their highs again. That's just the market's way of sorting out the top tier from all the rest.

In the meantime, the big whoosh down in the Nasdaq on Thursday wasn't as awful as it might have looked. Oh, it wasn't pretty, but using the New Tech 30 as a guide, about a third of these stocks held at higher lows than two weeks ago, Thursday, March 16. I use that data as a measure because that was the last previous low. And yesterday, the Nasdaq traded about 100 points lower than it did on March 16, so it's important to highlight stocks that held at higher lows yesterday.

Speaking of new lows on the Nasdaq, they did expand, but by such a trivial amount that I'm not sure if we shouldn't just call it a margin of error. There were only 157 stocks making new lows in Thursday's downdraft. You don't need me to tell you it could've been much worse.

While we didn't get a higher low in the oscillator, it is still as oversold as it was last summer. This calls for a quick review of last summer's action. The big decline from mid-July into August led to a huge oversold reading. We rallied from that oversold reading (the


even managed a new high, although the Nasdaq and


did not) and came down again in September and one more time again in October, providing us with a great low. That bottom was three months in the making from the highs, and two months in the making from the huge oversold reading.

There is no way to gauge how much longer it will take for the technology stocks to build a good base and do enough work from which to launch a sustainable rally. At the very least, the oscillator and the Yahoo! chart show us we can expect more ups and downs in the coming months before we call these charts bases.

In the short term, with the Nasdaq as oversold as it is and the fewer new lows we saw on Thursday, we can expect a rally in April, perhaps into the earnings season. However, over the more intermediate term, the oscillator is still missing a successful test of its lows, such as we saw last fall, so that test of the lows is still out there.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets on Tuesdays and Fridays, and updates her charts daily on Meisler trained at several Wall Street firms, including Goldman Sachs and Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback at