If individual investors can take a lesson from the furious action in

Lucent

(LU)

stock, it might be that after-hours trading still belongs in the twilight zone.

In the wake of Lucent's Thursday afternoon first-quarter earnings

warning, volume was heavy and price spreads narrow last night on

Instinet

, the

Reuters

(RTRSY)

unit that handles most away-from-the-market trading by institutional investors. But on

MarketXT

, the electronic communications network that serves retail investors who trade through three leading brokerage houses, trading was thin, as usual, and prices were all over the place. In short, those who traded on MarketXT got the short end of the fair-pricing stick.

Lucent:TSC Message Boards To add to the maelstrom, Friday morning saw

Lehman Brothers

analyst Steven Levy issue a stern about-face on Lucent stock less than 24 hours after he

raised his price target. Of course, his call Thursday hit the market just two hours ahead of the widely

chronicled preannouncement, leaving no small amount of egg on his face. To quote the analyst's turnabout-is-fair-play remarks of Friday: "Investors would be better off watching the company regain its footing from the sidelines." (Or, at the very least, they might benefit by not issuing reports just before preannouncements.)

The Late-Night Crowd

After trading down 4.6% to 69 during trading hours Thursday, Lucent traded in a fairly narrow range around 52 in late Instinet trading. About 6 million shares changed hands in the first hour of Instinet's late session and 8 million traded overall. Together with the 7 million shares that traded before the open Friday on Instinet, that's 15 million shares worth of volume in the stock, which is roughly equivalent to a heavy day in the widely held tech bellwether. That volume meant trading in size was possible and bids and asks were closely matched. It was, in short, an efficient market.

Breaking With the Past
Preannouncement proves a tough break for Lucent shareholders

Source: BigCharts

But on MarketXT, the ECN that retail customers of

Dreyfus

,

Discover

and

Salomon Smith Barney

use for postclose trading, trades were going off in the 54-to-56 range, with the last bid hit at 56. Only about 105,000 shares changed hands, making for a thin market featuring bid-ask spreads as wide as 2 points. While that was heavy volume for MarketXT, it lacked the critical mass that creates an accurate read on a share price.

That's not the way it's supposed to work. Last September, eight ECNs agreed to link their order books, which would consolidate pricing. That hasn't happened, leaving each ECN as an independent market.

"Until there's physical linkage between the ECNs, there will be price disparity," says Mark Madoff, director of listed trading at

Bernard L. Madoff Securities

and a market maker for MarketXT after hours.

Two Sides to Every Coin

In the past, when after-hours institutional trading was thinner, after-hours investors could pick up stocks of companies that warned and get rewarded handsomely. With the big volume in Lucent, however, that just wasn't the case.

"It's traded pretty heavily," said Bill Meehan, market analyst at

Cantor Fitzgerald

, before the open. "I would expect that more than is usually the case, the action in Instinet will give you a pretty good indication of where we'll open in New York."

And he was right. Lucent opened Friday morning on the

New York Stock Exchange

at 51 3/4 -- right around where it was trading on Instinet and more than 4 points below where it closed Thursday on MarketXT.

Analyze This

Despite all that, Lehman Brothers analyst Levy got a small measure of revenge Friday, downgrading the stock to neutral and unveiling a new, trimmer price target.

His report, "Lucent: A Funny Thing Happened on the Way to the Networking R/EvoLUtion," had Levy knocking down his rating for the stock just two months after he had upgraded it. With an astute grasp of the obvious, the report notes of Levy's new 12-month price target of 57: "This is significantly lower than the $95 level we set just yesterday."

But the report features less of the fury that the egg-faced Levy

spat into the phone last night as he was preparing to call Lucent CFO Don Peterson.

For instance, Levy stops far short of predicting doom for Lucent, calling the problems "temporary" and saying they "most likely will be fixed in the next few quarters." Levy concludes that "the company remains well positioned, in our view, to capitalize on the Networking R/EvoLUtion that is clearly under way. It is just a matter of better synchronization of the company's execution abilities and Wall Street expectations."

Maybe Levy will take some tips from Peterson in the smooth-talking department as he tries to do some explaining of his own.

Staff reporter

Ian McDonald contributed to this article.