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THE MARKET WHISPERER 53

any price” and “get me out” orders arrived from the entire United States. At
some point, the brokers and market makers stopped answering the calls,
and the market collapsed, out of control. The crisis commenced in Hong
Kong, spread to Europe, hit the United States and caused an index drop in
just one day of 22.8%, marking the greatest ever single-day drop. Despite
this event, and somewhat surprisingly, 1987 ended in net gains for the
year!

As always following a bubble’s burst, someone needs to earn a living
from creating new regulations and setting new standards. Within the
bubble’s craziness, the SEC put forward new rules meant to protect the
private investor and prevent a repeat of this event. The newly-instigated
changes focused on the market makers’ role. The SEC decided that in
order to guard the market from panic crashes and prevent a “sellers only”
situation, market makers would be obligated to buy a certain amount of
shares from the public during rate drops. The new law was passed shortly
after the crash, and calmed the regulators’ consciences for another brief
period.

The Dot-Com Crisis

The dot-com bubble burst on Monday, March 13, 2000, following five years
of sharp rises. On that Monday, the start of the trading week, the market
opened with a gap of 4% down on the NASDAQ index as a result of the
miserable timing of several parties which simultaneously sold shares in
Cisco, IBM and Dell at a value of billions of dollars. The drop ignited a wave
of sellers, leading eventually to a loss of 9% over the next six trading days.

SMART Crises are good for traders! High fluctuation, public panic,
MONEY and the ability to execute shorts are important tools in the
hand of an experienced trader.

The bubble was structured around the euphoria which peaked with

the invention of new, unprecedented economic models based on “market

penetration” instead of profits and on “unadvertised costs” and other
innovations that matched the spirit of the times. For as long as money
flowed into the hi-tech industry, especially in light of the low interest rates
of 1998 and 1999, the boom kept growing. In 1999 and the start of 2000,
when the government increased the interest rates six times in succession,

money was made more expensive, and the new economic models began to

collapse like a house of cards.