Although few people can afford the high stakes involved in the Keeneland Yearling Sales, just about everyone in the horse business was watching the results of the auction this week with great interest.

The average price of a yearling sold at Keeneland is a barometer of the entire thoroughbred market, just as the Dow Jones industrial average measures the health of the entire stock market.

When well-bred yearlings at Keeneland regularly started to bring prices of more than $1 million in the late 1970s, they triggered a speculative boom throughout the industry. When the boom came to a halt last year and prices plummeted at Keeneland, everyone in the business was suffering. Even the smallest breeders felt the ripple effects.

So before the two-day sale began Monday in Lexington, Ky., speculation was rampant: Had prices hit bottom last year? Was the thoroughbred business about to start a recovery?

By midafternoon Monday, when yearling No. 72 passed through the ring, the answer was clear. No. 72 was a son of Nijinsky II, the world's most fashionable sire now that Northern Dancer has been retired. The bay colt was, to some observers, the best- looking, best-conformed in the sale. In recent years, he was the type of horse who would have brought $3 million, $4 million -- maybe more if the bidders had gotten into a frenzy.

But the bidding was very tame, and an Arab buyer acquired him for $1.3 million. The great thoroughbred boom is over, and the recovery hasn't started, although the Tuesday session at Keeneland was markedly stronger than Monday's. There weren't many fireworks at all. The top price of the sale was $3.7 million; the average, $371,030. That was a drop of 9 percent from last year, and the stunning 1986 sale was a 24 percent plunge from 1985.

"On paper, this was the best catalogue of yearlings that has ever been assembled, and a high percentage of them had good conformation," said Bill Oppenheim, editor of the industry newsletter Racing Update. "On Monday, especially, the buyers just weren't there. You wouldn't believe the looks on the faces of the leading breeders. They were saying, 'What's going on?' "

What is going on? The great boom in thoroughbred prices had been a classic speculative mania, and the current drop is an inevitable correction. The boom had been fueled largely by two groups of bidders -- Robert Sangster and his British associates, and the Maktoum brothers of Dubai. Their rivalry drove up the prices of a few Keeneland yearlings to ridiculous levels -- as high as $13.1 million, which is more than twice what any thoroughbred has ever earned in a career. Prices at every level of the market started to rise, too, fostered by a euphoric sense that the horse market was going to keep going up, up, up forever.

Of course, it couldn't happen -- and it didn't happen. The Arabs had acquired so many horses and were now breeding so many of their own that they didn't have to buy yearlings so actively. The Maktoums and Sangster finally concluded that their rivalry was fiscally foolish, and they became partners on some expensive yearlings instead of driving up the price. Moreover, the whole ethos of bidding at the sales seemed to change.

"It's no longer fashionable to throw money to the wall," Oppenheim said. "The Arabs are very cagey, and they are now determined to be as circumspect as everybody else."

The drop in thoroughbred prices has wrought financial devastation. A casual observer might think that selling yearlings for $300,000 sounds like a great business, but breeders have to pay the cost of their raw materials -- i.e., stud fees -- two years in advance. Those who were selling horses at Keeneland this week bred their mares in 1985 -- when stud fees were at their peak.

Breeding a mare to Seattle Slew in 1985 cost anywhere from $500,000 to $750,000. Of the five Seattle Slew yearlings who went through the auction ring Monday, two weren't sold; the others brought $500,000, $400,000 and $170,000. Each breeder took a financial beating. And what happened to those people at the top of the market is happening to everyone involved at the middle and lower levels. Anyone who owns a mare or a stallion or a share in a limited partnership for breeding horses can mark down the paper value of his investment after this week's activities at Keeneland.

Before the Keeneland sale, optimists had hoped that the recent downward trend in prices would attract a surge of new money into the business. After all, plenty of Americans have fresh money made in the surge of the stock market; plenty of foreigners would be buying with strong currencies against a weak dollar. But there were no significant new players at Keeneland -- just the same old faces, who were spending less money than they used to. It's the classic syndrome of booms and busts. When a market is rising, everybody wants to get in and no price seems too high. When it is falling, nobody wants to play the game.