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Non-Tech : Knight/Trimark Group, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: KM who wrote (2835)	7/27/1999 5:06:00 PM
From: Herschel Rubin	Read Replies (3) \| Respond to of 10027

NITE came under heavy end-of-day margin selling pressure in the past few days as this insidious decline has continued. Today was no exception. I was pleased to see NITE close on the plus side, especially in light of all the press the ECN's are getting: Barron's Monday and WSJ Today! Right now, NITE holders are rather shell-shocked, as are would-be buyers. If (and when) NITE stabilizes and margin selling abates, NITE shall seek its own level, presumably significantly higher from here. Currently traders are trying to figure out how to read the role of ECN's, the NYSE, the NASDAQ, and NITE in the wake of all this recent information. It is a fascinating time to be in the markets. I, for one, have long wished ECN's would destroy the NYSE floor specialists and destroy market makers because I view them as a special case of an insider. Why are they akin to an insider? Because they have an unfair advantage with their ticket book. They can see all tiers of limit orders - we cannot. They also force prices down to scoop up stop-loss orders and they try to force "margarine" squeezes... Not exactly following their charter of "making an orderly market." So, why am I long NITE? I have realized that there is a time and a place for market makers, especially in providing liquidity for MOST of the issues traded on the exchanges. You need daily trading volume of, say, 1 Million shares or more just for ECN's to have enough orders to achieve what I'd call "spontaneous liquidity." The majority of the issues traded on the exchanges change hands at below 1 Million shares/day. So, the future will most likely consist of hybrid exchanges of ECN's and market makers with perhaps a high level of cooperation amongst the two. This is where I think NITE will fit in. NITE's management are not slouches in case you all haven't noticed. They, of any player, understand secular trends in the equity marketplace. I wouldn't expect them to sit back while ECN's come in and put them out of business. Rather, I would assume they are hammering out successful strategies as we speak. For one, they're already involved in BRUT. But I would wager that there are some bigger surprises to come. Today's volume was about at 4,476,500, definitely not a capitulation reversal. As I've said before, stocks don't require a panic capitulation to reverse a downtrend. If you look at the NITE chart, you'll see that's true some of the time. It's been my experience that panic capitulations usually happen after steep drops and low-volume reversals usually occur after slow insidious declines. This has been a slow, insidious decline compared to NITE's past behavior, so it wouldn't surprise me to see a trend reversal WITHOUT a key high volume day as some are hoping for, although those days are more satisfying. If you look back at recent asynchronous events that have hit NITE, you have to question whether or not it is statistically likely that such a cluster of these events will continue. I can list a few: 1. Burnham article 3 weeks ago stating sequential growth in OLB's will slow to 15% per quarter (is that slow). 2. Barron's article 2 weeks ago basically reiterating Burnham results, but knocked the wind out of OLB's earnings. 3. July 13th Insider Lockup expiration. 4. Schwab, et al. announced ECN partnership last week. 5. Reuters article last Friday quoting Pasternak as saying trade volume growth may slow to 5-10% sequentially. The way the sentence was worded, the some market players confused that with EARNINGS growth. 6. Another Barron's article about ECN's this past weekend (Monday edition), which cited incorrect data about NITE (25-day short-ratio!!) based on stale (June 8th) short interest data). 7. Today's WSJ article on ECN's also draws interest away from NITE. As I've said before, I don't think NITE's management will take this sitting down. They must be especially motivated, considering the sheer loss of their market capitalization. From their conference call, Pasternak said they have been "frustrated" that NITE wasn't sporting a PE comparable to that of Schwab. Pasternak has smartly made his forward looking disclaimer (slowing volume growth) for prevention of shareholder lawsuits (in the MSFT tradition of downplaying future quarters). Now, we might expect to see NITE defend their market cap by going on the offense. And they will.