That big reversal today on EBAY and AMZN might be worth noting.
Also the following:(source: Dow Jones)
3 13:59 T =TALES OF THE TAPE -3-:Market Makers Concerned About Selloff
At the same time, Herwick noted, the market makers are also on the defensive against the day traders and momentum players who are trying to take advantage of the volatility in the Web stocks - often at the market makers' expense. Rules instituted after the 1987 crash require market makers to take the types of small orders that typically come from day traders. "For the market makers, it's like walking down the street with money hanging out of your pockets and trying to keep people from grabbing it," Herwick said.
Of course, as long as the Web stocks continue to go up, the market makers can make money. But, Kim noted, "Internet stocks will turn around on a dime." And when waves of selling hit, there is often no one to take the other side of a trade - other than the market makers themselves.
So they are determined not to become the "market of last resort," as Madoff put it, when the mania finally dries up and panic hits. "The market makers are not going to put themselves in harm's way," he said.
Several brokers that actively deal with trading in Internet stocks, including several online brokers, said the market makers' actions have had little effect on them so far.
Ameritrade Holdings Corp. (AMTD) has not noticed the trend. And E*Trade Group Inc. (EGRP) said it's not a problem for the firm since it deals with 15 to 20 different market makers and can shift orders among them.
But by reducing their involvement with Web stocks, market makers could exacerbate the lack of liquidity in many of the smaller issues, some believe.
Blake Darcy, chief executive of Donaldson, Lufkin & Jenrette's (DLJ) DLJ Direct, added that the market makers' reluctance to accept large orders for Internet stocks also compounds the volatility since they aren't there to take the other side of the trades in these shares.
The market makers' actions come as the securities industry moves to protect itself from the sharp, unpredictable moves of Web stocks. In recent months, a number of major brokerage firms - including some leading online brokers like Ameritrade and DLJ Direct - have raised the amount of equity that must be maintained in margin accounts that invest in Web shares.
In addition, given the frenzied buying that has propelled many Internet IPOs to incredible heights in the aftermarket, Charles Schwab & Co. (SCH) has stopped letting customers trade new offerings online on their first day of trading.
Meanwhile, the National Association of Securities Dealers recently formed a committee to come up with recommendations on how to deal with the extreme volatility in Web stocks in general and the manic behavior of Web IPOs in particular.
But in the end, Wall Street cannot control the actions of retail investors determined to own Internet stocks at any cost. So for the time being, many market makers are moving closer to the sidelines to wait out the mania."
Conclusion: any selloff may come from the structure of the trading system.
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