Well, that was fun.

The Nasdaq-100 had its worst percentage drop of the year so far on Thursday. And what was the cause?

It's hard to say since everything that was the "cause" yesterday could've been the cause of a crash any other day this year, as the market has kept heading toward all time highs:
  • The oil price spike
  • Fear of conflict with Iran
  • Fear the Fed will go too far
  • Fear the expansion has come to an end
  • Fear the housing bubble will burst

The list goes on, but because this slide came right after the Fed meeting I must assume that most people are disconcerted that the FOMC didn't more clearly signal an end to the rate hikes.

In any case, what we do know at this moment is that all is well when compared with the beginning of this bull market in early 2003. Steve Forbes offers some interesting stats in this week's Forbes that are worth quoting:
  1. After-tax corporate profits have exploded to almost $1.1 trillion at the end of 2005 from $727 billion in the first quarter of 2003, an increase of 46%.
  2. Dividends have proliferated, rising to more than $200 billion today from an annual rate of $149 billion in early 2003.
  3. 5 million new jobs have been created.

Additionally, megacap companies such as Microsoft ( MSFT - Get Report) and Intel ( INTC - Get Report) have never, in their entire history as public companies, been cheaper than they are today, relative to historical multiples of price over earnings.

Yes, you can argue, they've had their slips. Intel is facing increasing competition from Advanced Micro Devices ( AMD - Get Report) and Microsoft is facing competition from the likes of Google ( GOOG) and Yahoo! ( YHOO). And Microsoft's announcement that it is delaying Vista has been a disaster for Microsoft.

But let's face it, the company is going to have enormous earnings next year when Vista comes out, regardless of the economy. And Intel will as well when every corporation begins its upgrade cycle.

The P/E ratio of the S&P 500 is going to be near a 20-year low by the end of 2007 if we stay at these levels and it will probably be at a 50-year low when compared relative to current interest rates.

So yes, we had a selloff in the face of the market hitting all-time highs. But fortunately for us the "QQQQ Crash" system has triggered.

I've been writing about the QQQQ Crash system for at least three years, and I detail the system in my book, Trade Like a Hedge Fund. As of the last writing, in January, the system has been successful in 61 out of 61 trades. It is defined as follows:

Buy the open the day after the Nasdaq-100 Trust ( QQQQ) closes 1.5 standard deviations below the 10-day moving average of the low price on the QQQQ each day. In other words, if the QQQQs make a statistically significant move down, we're a buyer.

Sell if the QQQQs close higher than the buy price on any day over the next 20 days. If the QQQQs are still in negative territory 20 days out, then close the trade out with a loss. But again, we've had 61 winners, with no asterisks.

Friday morning, the QQQQ crash triggers again.

The trigger price was $40.90 and the QQQQs closed below $40.74.

Another way to play the system is to buy the Nasdaq-100 stocks you believe are the cheapest (or the most volatile). Another way is to take a partial position now and average down if the QQQQs go lower today. However, you should be aware that most occurrences of the system have been exited on the first day.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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