Apple's (AAPL) behavior the other day was a great mystery, which drew rivers of ink from many different quarters.
The theories on why it suddenly reversed course and plunged were several and varied, from the "exhaustion" theory after Apple went somewhat parabolic, to the iPad situation in China, where a small company is holding the rights to the iPad name and has managed to stop its distribution, could be the cause. More realistically, others pointed to a rumor making the rounds of a possible Nasdaq rebalancing, in the lines of a past one that took down Apple's excessive weight.
This rebalancing theory even warranted a note by Citigroup (C) analyst Parin Ghandi, basically saying that the Nasdaq published rules requiring rebalancing did not apply as the weights for Apple or the sum of the largest market caps were not violating the limits set by Nasdaq. Importantly, The Wall Street Journal contacted Nasdaq itself, and the answer was mostly along Parin Ghandi's line.
However, in this entire search for a motive or culprit, there were a few facts that a lot of people seems to have missed. First, when did the day's incredible run (AAPL was up 3.3% at one point) really start? In a way, it started 30 minutes before the close, during the previous session … and no, that was not due to Greece.
So what happened when there were just 30 minutes left in that session? Ah. Tim Cook started his keynote address at Goldman Sachs (GS) Technology and Internet Conference in San Francisco! You can still listen to the webcast here in Apple's investor relations page, or read the transcript here.
So he must have had some pretty positive things to say, right? Well, he did re-iterate how he expects tablets to sell more than PCs, and how Apple is thinking hard about what to do with all that cash. But it's not really terribly important, in the sense that the stock itself started climbing even before he said any of that. He took a few minutes to get up to speed between disclaimers and all, and the stock was already on its way by then.
But the story doesn't end here. When was it known that Tim Cook would actually even be presenting in this Technology conference? That's somewhat amazing in itself. It was known only on Monday when Apple posted a note confirming as much. And what happened on Monday? An AAPL gap-up …
But now we have to wonder, when did the organizers of that conference have the certainty that Tim Cook would be present and giving his keynote address? Could it have been the Thursday before, where Apple not only gapped up, but traded notable volume as well? Indeed, on the run up to yesterday there were several unnatural peaks in volume, some only comparable to what you see after an earnings release.
So, from the looks of this, what seems most likely to have happened, is that someone accumulated a large Apple position based on the knowledge that he'd have a catalyst to push up the stock price in a few days' time. Once that catalyst arrived the stock was spiked into the close of the market and during the night session where there's little volume. Come the new session, Goldman Sachs reiterated its conviction buy and $600 price target. General euphoria did the rest during the trading session.
There was just one thing missing here. The dump. Right into the euphoria and relentlessly, the shares that were previously accumulated were sold. This is perhaps how you sometimes go an entire quarter without a single losing day.
If the theory explained here is correct, Apple will suffer from the overhang of this trade at least for a few sessions, and might still have a few tens of dollars of downside. Over the long term it shouldn't be too relevant, but on the short term demand will probably have been sated.
Over the long term
Over the long term, this kind of trade should have little impact beyond removing some of the trust people have on the workings of the market. For Apple, beyond the continued acceptance of the iPhone as the golden standard in smartphones, justifying its premium pricing in spite of its large sales volume will continue to be the most important factor. Other than that, the only possible threats are the likelihood of a smartphone glut or a drive from the mobile carriers to cut the smartphone subsidization somewhat.
Still, it's important to know how the games are sometimes played in the market, as it can make for better entry and exit points, all else being equal.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.