Multiple SA commentators and analysts have cited the short-sellers to have been a significant contributor towards Apple's (AAPL) downward performance over the past year, in the commentary thread of my previous article "Hedge Fund Picking Means Apple Season". While I am fundamentally bullish on Apple, I also believe that understanding why the stock has not performed to expectations is a necessary analysis. Unfortunately, I do not think Apple's lack of performance is driven by short-sellers, and I wanted to present a case to refute this claim, so that Apple bulls can stay educated and explore other technical explanations.
Short interest vs. sector
Apple short interest ratio generally has ranged from 0.5-2% over the past 2 years. Much of last year it went from 1% to 2%, and within that range, bounced around a little bit. This is extremely small relative to the general short interest that is considered "normal" in the market. All sectors average an average short interest of 5.62%, and assuming Apple to be a blend of consumer discretionary, and information technology, that short interest average is 5.92%.
To put this in perspective, Netflix short interest is 11%, Angie's List is 37% - these are real numbers of potential manipulation or impactful shorting. Apple's short interest is far below that number. In addition, the absolute short interest is very low, and you can see the complete breakdown of short interest versus stock price for a meaningful correlation. If you look at when short interest consistently rose the most, it is from February to June, and from September to November of 2013. In terms of stock performance, February to June the stock was volatile but flat, and from September to November, the stock managed to rally as short interest supposedly rose. This shows you that short interest is not a meaningful factor to explain Apple's stock price.
Short interest in the context of Daily Volume
(click to enlarge)Furthermore, what is more interesting is to look at Short Interest ratio / Average Daily Volume. I think this is an important signal because it allows you to observe the short interest in the context of daily average volume to assess liquidity-adjusted market impact. What the below graph shows you is that the ratio actually steadily decreased for the entire year - this means short interest in the context of actual trading volume decreased from 1x in 1Q2013 to .25x in 3Q2013.
Does this mean that Apple did not experience net selling? Of course not, the volume is steady as the above graph demonstrates, and the stock price went down, which means that there were naturally more sellers hitting the bid. My gut feeling is that a lot of long-term (2008+) Apple value investors took their profits last year, and we are in the midst of an investor base reset. As new buyers enter their longs in 2012-2013, these buyers are likely holders for another 5 years into 2017-2018, and we can expect the selling activity to stay muted. I believe this is the technical explanation for its price action, and my supporting claim as to why the technical are resetting in the bulls favor for this year and beyond.