Dissecting the Apple Flash Crash

Sep.29.10 | About: Apple Inc. (AAPL)

Apple (NASDAQ:AAPL) had a mini flash crash on Tuesday, as you may or may not have heard. The gist of the story is that the US markets have literally become a casino, without the pretty waitresses to serve you drinks as you gamble your hard earned loot.

This thing with Apple is a little different, though. Apple is one of the most liquid (obviously not, but allegedly) and widely traded stocks in the US markets. It should be the LAST company to have to face an absolute dearth of buyers as its price drops on no fundamental news, whatsoever. Alas, that is exactly what happened. Check the charts… (Click to enlarge)

Click this chart to enlarge

Apple's stock literally went without a bid, several times, as the prices started to collapse. Oh well, so much for liquidity. Add to this the nature of many who own Apple stock… to say they are passionate would be a gross understatement.

Apple derives nearly 70% of its profit from a single product, a product that is besieged with competition left and right, and from some of the most capable companies in the world. Margin compression is as inevitable as the sum of 2 + 2 equaling 4. What do you think Skynet will do once they get a fundamental head start on this senseless price action predatory puree?

Seriously, as widely held as Apple is, just suppose the machines get a whiff of weakness from a report of the inevitable margin compression and go to town. There goes the markets for a day, or two, or seven hundred and twenty, or however long it will take for rational and sane investors to trust these markets, ever again.

Disclosure: No positions