Hambrecht & Quist Report-12/1/99
ú The party was on Nasdaq during November as average daily volumes surged 25% compared to October levels. The NYSE wasn't invited as volumes actually fell slightly.
ú Speculative fever ran wild during the month creating the type of volatility that trader's crave.
ú While the flurry of activity during the month will likely be labeled an aberration, at what point does this become a trend?
ú We are increasing our forecast for average daily online trades from a 15-20% sequential rise during the quarter to a 25-30% rise. If volumes hold in December, the quarter could be stronger.
ú Even accounting for a potential December swoon, we are adjusting calendar fourth quarter estimates upward for EGRP, NITE, and SCH.
NOVEMBER WAS AN AMAZING MONTH. The markets apparently brewed the perfect potion for speculative fever during November as Nasdaq volumes surged to record levels. For the month, average daily volume totaled 1.34 billion shares, a 25% increase over October. For the quarter, volumes are on pace to exceed third quarter levels by 24%. Strong performance from technology stocks fueled the fire, helping the Nasdaq Composite Index hit a record high 15 out of the 21 trading sessions during the month. The NYSE did not participate in the volume rally as average daily volume fell slightly to 866 million shares in November compared to 897 million during October. However, NYSE volume this quarter is still on pace to better third quarter levels by 17%.
BILLION SHARE DAYS:ABERRATION OR TREND? Not too long ago, daily Nasdaq trading volume in excess of 1 billion shares was considered a rare and infrequent event. But more recently, there is an apparent trend building towards billion share days becoming the norm rather than the exception. Over the past several months, we have seen a steady climb in the number of billion share days. November was the first month to see trading volume above 1 billion shares on every trading day (excluding the abbreviated trading session on 11/26). Although we viewed the volume spikes in January and April as aberrations, we can't help but wonder if this heightened activity is becoming a trend, especially given the record levels achieved during November. Number of Trading Days with Nasdaq Volume Exceeding 1 Billion Shares
WHO IS RUNNING THE SHOW? We believe that the growing frequency of billion share days on Nasdaq is indicative of the ongoing growth of the online brokers and the migration towards easier and cheaper trading. Without a doubt, the strength of the market averages has played a major role, but is the tail now wagging the dog? In other words, to what extent are online retail investors controlling price movements and forcing traditional investors (including institutions) to follow? We strongly believe that retail investors are having a much larger impact on Wall Street than many are willing to admit. Whether this is healthy or not is another question, but we believe it is happening nonetheless.
RAISING ESTIMATES. With the books now closed on two thirds of the quarter, we are very confident that overall volumes will exceed our original expectations for the entire quarter--even assuming volumes fall sharply during December. We are increasing our industry estimate for average daily online trades for the quarter from a 15%-20% sequential gain, to a 25%-30% gain. If volumes hold relatively steady in December, the increase could easily be even greater. Based on the increased trading activity, we are increasing our calendar fourth quarter estimates for E*Trade (EGRP, $30.16, Buy), Knight/Trimark (NITE, $41.19, Market Perform), and Charles Schwab (SCH, $37.94, Buy). Please see our individual company notes for more detail. |
