"Buy the rumor, sell the news" is a common refrain among traders. The week of June 2nd may provide another case study for this refrain.
Apple (NASDAQ:AAPL) has well out-performed the market with a 6.8% gain in the four weeks leading into its 2014 Worldwide Developers Conference (WWDC) beginning on June 2nd. The stock is up 3.1% in the last week.
AAPL has continued to soar since April earnings
The WWDC is a marquee event that brings together thousands of Apple enthusiasts including Apple engineers and external developers. As Apple puts it: "and life will be different as a result. Write the code. Change the world." Some of the exuberance can be seen in the run-up in Apple's stock going into the WWDC. These gains provide a fertile case for testing out the old trading refrain of buy-the-rumor and sell-the-news. The results from trading around the WWDC during the years 2000 to 2013 are quite telling…
- Only one year since 2000 has delivered a one-day gain for AAPL on the first day of the WWDC. That gain occurred in 2001: +0.13%.
- Every year since 2000 the week of WWDC produced a loss for AAPL.
- The four weeks prior to WWDC have produced gains 9 out of the last 14 years and also 9 out of the last 11 years.
- The week prior to WWDC has produced gains 10 out of the last 14 years and also 10 out of the last 13 years.
Perhaps in relief of the sell the news during the week of WWDC, the week after WWDC has tended to produce gains: the week after WWDC has generated gains 9 out of the last 14 years and also 9 out of the last 12 years.
The charts below show the data I have also made available via a Google spreadsheet. I have selected various pairs to demonstrate that there are, unfortunately, no good correlations to help predict the magnitude or direction of the WWDC trade based on the stock performance going into the WWDC or even based on the first day's performance. The thick blue lines mark the y and x-axes at their zero points.
Apple Price Changes Around the WWDC (2000 to 2013):
1-Week Prior Versus Day #1
Apple Price Changes Around the WWDC (2000 to 2013):
4-Weeks Prior Versus the Week Of
Apple Price Changes Around the WWDC (2000 to 2013): 1-Week Prior Versus the 1-Week After
The chart definitions are based on dates I found through web searches - mostly on the Apple.com and Macworld.com sites. All price changes are based on closing prices from Yahoo Finance:
- First Day price change: the Monday of the week during the WWDC to the first Friday before the WWDC begins.
- 1-Week Prior price change: the first Friday before the WWDC begins to the second Friday before the WWDC begins.
- 4-Weeks Prior price change: the first Friday before the WWDC begins to the fifth Friday before the WWDC begins.
- 1-Week After/Post price change: the first Friday in the week following the WWDC to the Friday during the week of the WWDC.
The data contain some bits of solace for traders who hold positions going into WWDC. When AAPL rallied in the four weeks going into the WWDC (nine years), there were only two years where trading the week of the WWDC completely wiped out the earlier gains. Out of the ten years AAPL gained the week prior to the WWDC, just four years featured WWDC trading which wiped out those gains.
Of course, every year is different in some way. For 2014, AAPL has the blockbuster acquisition of Beats Electronics almost perfectly bracketing the four weeks of trading ahead of the WWDC from rumor to news (see the above stock chart). The fade in AAPL stock on Friday could rightly be called a bout of sell-the-news, and it could take some steam out of what would have been selling during WWDC. It is nearly impossible to know for sure. Some new product news related to the acquisition could electrify the WWDC.
After the WWDC ends, there is still the news to come of the 7-to-1 stock split. AAPL has deftly chosen to bracket the important dates for the split during the WWDC. Shareholders as of June 2nd are entitled to split shares, the first day of 2014′s WWDC. June 6th, the last day of WWDC is the day of the split. The shares first trade on a split-adjusted basis on June 9th. Given this timing, the typical relief buying the week after WWDC could easily be muted by selling the news of the split.
Finally, there are factors external to Apple's stock. The S&P 500 (NYSEARCA:SPY) is trading at all-time highs, and the NASDAQ (NASDAQ:QQQ) is climbing back toward 14-year highs. AAPL has a strong tailwind in these indices. Yet, risks are high that the market has now reached extreme levels of complacency that typically preceded some kind of pullback.
Apple has not made enough blockbuster acquisitions or stock splits to tease out guesses as to how all these cross-currents could settle. It is also possible that other factors like the stock market's general performance could provide some predictive insights. The bottom-line is that all else being equal, traders should expect AAPL to trade with a loss on June 2nd (violating the typical Monday rally for AAPL) and for the week of June 2nd. If my sentiment analysis remains valid, the march toward all-time highs should resume in due course after the WWDC ends. Stay tuned…
Be careful out there!
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AAPL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.