No Light Ahead for Knight/Trimark

Good night, Knight (NITE).

Few stocks have captured the imagination of the online crowd as much as Knight/Trimark. I didn't know it myself until I mentioned it once disparagingly, totally offhand, as a company that might be getting hatcheted in Barron's.

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I might as well have been attacking the Queen Mum. My mailbox turned into a vicious cauldron that threatened to engulf my very being. For many people, Knight/Trimark is online investing. It batches most of the orders for the onliners and executes them. Its earnings had been coming in well ahead of expectations quarter after quarter, and it seemed like its penetration had gotten near 50% of the initial public offerings.

But something happened this summer in the online trading world. The daytrading industry, the lifeblood of Knight/Trimark, got exposed as a high-pressure -- at times unscrupulous -- business, with disregard for the rules of margin. In other words, intraday individuals could leverage up to the size of institutions, magnifying many times the power of their dollars.

With the Mark Barton killings, the daytrading world seemed to come unglued. The business of furious trading peaked and with it any hope for NITE to meet the estimates. Companies have cracked down on intraday margin horrors. The industry itself has been unable to attract new adherents to replace the burned-out, cash-depleted vets.

Despite what P.T. Barnum might say, suckers are not born fast enough to replace these bedraggled ranks.

Ironically, the company has started a huge ad campaign, putting it in the league of all of those with stepped-up expenses right at the time when its client base seems to be reeling.

That's bad for the numbers.

Even as analysts were cutting estimates in the past week, the numbers were falling behind those new estimates. So, the preannouncement this morning puts an end to the death rattle of estimate whacks and takes us to the funeral itself.

Now we will see what happens to online traders when one of their own disappoints.

My thinking: It will be the definition of ugly.

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