So here we are. Apple is at all time highs. The stock is up another $5 today. The Apple/QQQQ slingshot trade has generated huge returns. We're waiting to sell until Apple moves against the market to the downside. But what is really going on here? This stock action certainly isn't happening because mainstream
investors decided they wanted to buy in last Friday. This isn't
investing 101. This is advanced hedge fund action so let's make an
effort to understand things from their point of view.
This run is happening because of Norway. About a month ago, some third
party Apple reseller decided to put a link on their website to allow
customers to pre-order the iPad. They had to shut it down because the
demand was overwhelming. We all know that Steve Jobs worries just as
much about marketing as he does about the products themselves. At the
end of the day, nobody actually needs an iPhone or an iPad in the same
way that nobody needs an In-N-Out Burger or a Tito's Taco. The
atmosphere of standing in line to get your favorite product is very
The lines outside of Apple and AT&T stores were essential
to the iPhone's success. Part of the iPhone secret was that the phone
had to be activated at the point of purchase, and this process took
approximately 5-10 minutes and contributed to the lines. The iPad
doesn't require the same activation process. So how can Steve Jobs
generate similar hype? He knows he won't have the same lines that he
had for the iPhone. This is where Norway comes in.
Apple doesn't need to do an iPad pre-order. But they're doing one on
March 12. This allows them to make an announcement telling the world
that demand has overwhelmed their system and they won't be able to
take any more. This gets consumers anxious that they won't be able to
get one and you know the rest. This is a controlled situation where
the only outcome is a positive one. Hedge funds do whatever they can
do to eliminate risk in their short term trades. This is an easy one.
They see that Steve Jobs is going all out. He even appeared at the
Oscars wearing a tux! He knows how big this iPad can be, and I
guarantee he will use this pre-order as an opportunity to create a
perception of scarcity.
If Apple goes in the opposite direction and decides to remain silent,
it would open up a window of opportunity for hedge funds to punish the
stock on a perceived lack of demand for the iPad. We'll be watching
closely to see which scenario plays out. I've got a very quick
trigger to take my gains off the table but I'm not quite ready yet.
It looks like we're headed into the peak of Apple hype.
Disclosure: Long Apple.