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It was a case of the bear vs. the dynamo.

The dynamo was Calpine, an electrical power producer rapidly building gas-fired power plants and expanding its holdings across the U.S. The bear was on the horizon, as the tech-frenzied Nasdaq was less than two years from a grizzly slump.

Calpine had gone public in 1996 and quickly began expanding, from 297 megawatts of generating capacity in 1992 to 2,279 megawatts by the end of 1998. The stock built a long base after its IPO. The stock sent mixed signals in the four quarters prior to its October 1998 breakout.

Earnings were choppy, rising 20% and 80%, declining for one quarter, then rising 24%. Sales growth rose to 109% just prior to the breakout, and the five-year growth rate was 54%.

High Ratings

Despite the ups and downs, Calpine held an Earnings Per Share Rating of 88 and a Relative Strength Rating of 95. No other stock in the group held an RS higher than 80 — a good cause to be wary of the sector.

Calpine also rated an Accumulation/Distribution Rating of A. That suggested big buyers were picking up the stock. But analysts were calling for a 22% drop in EPS for 1999.

Calpine's 11-week base wasn't picture-perfect. But it was a cup with handle with signs of accumulation.

Two high-volume sessions marked the absolute bottom of that cup, a good sign of support for the stock 1. Another up day on solid volume confirmed institutions were buying shares 2.

On a weekly chart, it's clear that the base was really the handle of a larger, 57-week cup 3.

More aggressive buyers might have drawn a line from the top of the left side of the base across the top of the handle in order to anticipate the breakout. This method showed the stock moving up on Oct. 20, 1998 4. Volume was 118% above average.

Several days earlier, the market logged a follow-through day, confirming a new bull market. Tech stocks broke out in numbers in late October and November. But Calpine, some retail stocks and a few other outsiders joined the rally, running with the bull market that continued through March 2000.

Calpine proved the analysts calling for earnings declines wrong in 1999. Its quarterly earnings growth ranged from 35% to 220%. Mutual fund ownership of its shares increased from 25% to 37% during the year.

That was all cheery news for investors who had bought at the October '98 buy point. It was also a warning sign, because stocks tend to top when the news is all good. When everyone is getting excited, it's a good time to look for exit points.

Calpine forged upward well beyond the Nasdaq's March 2000 top. The stock topped a year later.

In the spring of 2000, it formed one last profitable base 5. It broke out and then struggled higher. Its last gasp was a wide-and-loose base 6, which can be a sign of trouble.

Then, in spite of good news on the company and just after its third 2-for-1 split for the year, it failed. Multiple splits also often spell danger.

Shareholders at that point, in 2001, were either intrepid or blind — the bear market was in full swing. A prime time to sell would have been April 2000, when the stock saw a high-volume sell-off.

The best practice in bear markets is to be fully in cash. Typically, bears take everything down before they end, even tough-as-nails stocks like Calpine. After the Enron collapse, tightening credit and easing power prices left Calpine overextended. The stock fell from a high of 58 to 1.55 in 11 months. The company filed for Chapter 11 protection in Dec. 2005. It has not yet re-emerged.

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