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Contributors: Douglas McIntyre Jon C. Ogg

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Friday, September 15, 2006

Is Knight's Weak August Volume a Harbinger or Is It Just August Noise?

Knight Capital Group (NITE) is trading down 3% pre-market on only a few hundred shares after the company released its August 2006 trading volume numbers. There has been a lower trend in the overall trading numbers from many firms, but these numbers seemed harsh for NITE. Since the company has essentially no investment banking fees and has no banking/deposit operation of any real size, it is deemed a pure-play on trading and market making activities.

Market volumes were even weaker than usual in August during the traditionally slow late summer period, said Thomas M. Joyce, Chairman and Chief Executive Officer, Knight Capital Group. "Overall average daily equity share volumes in the market fell by approximately eight percent sequentially from July levels. We believe that in the fourth quarter, the market may be encouraged by several economic indicators such as steadying interest rates and cooling oil prices.

Average daily dollar value traded in August 2006 was $6.25 billion, down approximately 11.1 percent from $7.03 billion in July 2006, and down approximately 13.5 percent from $7.23 billion in August 2005.

Average daily U.S. equity trade volume in August 2006 was 723,000, down approximately 6.7 percent from 775,000 in July 2006, and down approximately 10.2 percent from 805,000 in August 2005.

Average daily U.S. equity share volume was 3.67 billion in August 2006, down approximately 28.8 percent from 5.15 billion in July 2006, and up approximately 43.1 percent from 2.56 billion in August 2005.

There were 23 trading days in August 2006, versus 19.5 in July 2006 and 23 in August 2005. The thing to note is that August is always a crummy month if you had to pick one month to blow. There is still a pretty large growth expectation for the company on a year-over-year basis, so there is a possibility that the street will just throw these numbers out the window. This is a name we have tracked for some time since the company got its operations all back in order with better trading models and better controls in place. In the last year, NITE has rallied from $8.50 to over $18.00. The chart is looking a bit toppy and like it may still be overbought, but since it was August activity that was so weak we can't go out with any major conviction that this will be deemed as a stock killer.

Jon C. Ogg
September 15, 2006

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