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Bell Curve: How After-Hours Trading Foreshadowed Tuesday's Ameritech Selloff

An after-hours trade in the stock Monday may have gotten the ball rolling for Tuesday's drop.
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To critics, after-hours trading is a wasteland of thin volume and wide bid/ask spreads where abuse and manipulation are not only possible, but likely.

OK. Fine. Just don't try to run that daylight-trading-only stuff by the lucky (or smart) few who managed to lighten up on



Monday night before the Baby Bell dropped another 4.3% in Tuesday's standard session.

While extended trading hours have attracted criticism from many corners of the securities industry,


saw the first crossover mover Monday during its 6 p.m. to 8 p.m. EDT session, which has been operating less than a week. It joined a

handful of other systems that provide trading platforms outside of the standard 9:30 a.m. to 4 p.m. trading day.

All of them will be struggling to appear legitimate and efficient to both investors and trading firms. The late-trading providers' best chance of gaining that recognition will be if the extended hours produce moves that carry over into the more liquid standard trading sessions on the





Searching for huge volume or a


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blowup in this new terrain likely would be useless at this point. But Monday night's traffic in Ameritech -- even though it came from clients at just two online brokerages -- showed evening trading may attract more than knee-jerk, dinner-deprived investors chasing Net stocks in the dark.

"You've got to guess right on those after-hours trades," says Ray Murray, director of trading for

Investment Advisers

, a Minneapolis-based fund manager and adviser. "Because the volume is so much thinner, a wrong guess could kill you when the regular session starts." (Murray's fund is long Ameritech, and he says he wishes he had sold some of his shares in after-hours trading Monday.)

And Monday night, someone guessed right.

Ameritech then was MarketXT's busiest issue, with volume of 2,000 shares. While that number is slim by any measure -- Ameritech's average daily volume on the

New York Stock Exchange

is 1.5 million shares -- on Monday night, the stock fell 3/4, or 1.1%, to 65 1/4 from its Big Board closing price of 66. (During regular trading Monday, the stock was off 13/128, on the news that New York buyout firm

Forstmann Little

was investing heavily in a local carrier competitor.)

But Tuesday morning, there was no trading of Ameritech on


before the regular market's open. That made it more likely that Monday night's action was an isolated trade or two in anticipation of a further selloff.

When NYSE trading started, Ameritech's selloff came. Ameritech opened at 65 3/16, down 13/16 from its Monday close and down 1/16 from where it closed in after-hours trading. Within 18 minutes after the open, Ameritech had fallen on volume of more than 130,000 shares. The stock fell almost 2% to 64 13/16, down 1 3/16. (The price difference is determined from the last NYSE closing price and not from any after-hours price.)

A spokesman for Ameritech says the company doesn't comment on the day-to-day trading in its stock.

Michael Balhoff, an analyst for

Legg Mason Wood Walker

, says Ameritech's stock more than likely turned down in tandem with the stock of

SBC Communications


. The two companies have agreed to a $61 billion merger, which is scheduled to close this month, and their stocks naturally have been linked ever since, Balhoff explains. The merger values each Ameritech share at 1.316 SBC shares, so when SBC falls, it takes Ameritech down, too. SBC shares slipped 3/4 Monday and 2 1/16 Tuesday to close at 48 1/16. (Balhoff has a buy rating on Ameritech. Legg Mason has no underwriting relationship with Ameritech.)

By 10:15 a.m., with Ameritech down 2.7% on volume of more than 230,000 shares, the selling seemed to subside. But suddenly some sizable trades kicked in, possibly from institutional players, and volume surged to close to 500,000 shares. The stock continued its slide, then held at 64 before falling to a new low for the day of 63 7/8, down 2 1/8, or more than 3%.

As the activity moved into the afternoon session, Ameritech dropped as low as 62 1/8, down 3 7/8, or 6%, as volume moved quickly past its average 1.5 million-share mark. The downturn left questions in the minds of some observers. "We had no reason why the stock was down; there was no fundamental reason from our point of view," says Balhoff.

In the last minutes of trading, a rush of small-order buying moved the stock up to 63 1/8, where it settled, down 2 7/8 on volume of about 2.1 million shares.

The after-hours trade Monday might have started the momentum that further pressured the stock Tuesday, says Legg Mason's Balhoff, who adds that he worries about the impact of after-hours trading on stocks and investors.

"The sources for information are not as good, so it is difficult to figure out why some of these trades are being made," he explains. "There is a potential for great inefficiency here, but I'll probably be proven wrong, and after-hours trading will be a huge hit."