Blow Off Or The Beginning Of The End?

Posted: October 24, 2007 in Technology and Business
I kicked myself for not writing this last Friday when the Dow and Nasdaq plunged, only to retrace earlier this week.
 
So, with the Dow and Nasdaq plunging today, let me say this:  Smaller blow offs, while painful, are a healthier way to moderate (dare I say) exuberance than a big ‘ole crash.
 
After all, you wouldn’t want a water heater without a pressure value, right?
 
But the $64 question is this:  Is this a small blow off or The Beginning Of The End?
 
My observation:  As long as the long list of companies leading this market up (GOOG, AAPL, etc.) continue to surpass expectations, the trend will be up.  The moment they don’t, the trend will be down.
 
Duh, eh?
 
Harkens back to 2000.  As I recall, I remember crediting MSFT, one of the companies leading the market back then, with being the catalyst for the entire dotcom bomb.  (I just didn’t have a blog to state it then!) 
 
Things were clearly frothy at that time.  I remember the Nasdaq being up 17% in one week — or was that one day?  Either way, that’s not supposed to happen with an index.  Everything was just grand until — until — MSFT, the leader, missed earnings by 1 cent… for first time in many years.
 
This sent a strong signal:  Unbridled growth (and enthusiasm) were no longer in front of us… but behind us.
 
What happened? 
 
MSFT closed 20 April 2000 @ $78.94 on volume of 52 million… and closed on 24 April 2000 @ $66.62 on volume of 314 million.  As we all know, MSFT — and the entire rest of the market — kept dropping.  When MSFT leveled out, it never really recovered, staying flat for the next seven years… and counting.
 
When will this happen with the current crop of leaders?
 
For GOOG, the go-go years should continue until online advertising hits at least 15% of the current spend… which, at only 5% +/- penetration today, still should give GOOG a year or two run-way. 
 
That’s why I’m the most optimistic guy in the world about online advertising:  15% penetration is not an "if" but "when".
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