Apple's Glut Of Hedge Fund Trading Action

| About: Apple Inc. (AAPL)

The biggest surprise of the shareholders meeting was the lack of appetite for Apple to sell off. No dividend. No stock split. No buy back. Nobody cares. The stock goes up. The unseen dynamic that no one is talking about is the absence of hedge fund induced selling.

In terms of Apple fundamentals, nothing has changed over the last few years. Apple's future was bright in 2010, it was bright in 2011, it's bright in 2012. The difference today is that we don't have the hedge funds selling the stock in order to buy it back at lower levels for a guaranteed slingshot bounce.

I could make a compelling argument to begin such a selloff today by using the dividend disappointment as an initial catalyst, followed up with analysis that the iPad 3 isn't much of an upgrade. But no such thesis has been able to budge the stock from its perch.

There were a few times when the stock dipped into negative territory in the aftermath of the dividend disappointment, but it was unable to evolve into any kind of snowball behavior. If Apple holds current levels through today and into tomorrow, it will count as yet another sign that this stock action is 100% bullish.

Did the hedge funds decide to take the year off? Perhaps they did. Perhaps they view 2012 as the beginning of the Apple Apex, a time period marking the end of p/e contraction and the prime of the Apple growth story. Without the extracurricular negative headwinds from Europe or the U.S. economy there is little ammunition to justify large Apple corrections. Maybe the money managers decided it was a losers game.

I'll admit, it's strange to write such things, because they sound so ridiculous. We all know that stocks don't go straight up, we all know that stocks find reasons to sell off when they are overbought, and we all know that Apple is the investment vehicle of choice for the hedgies. Now more than ever, if they can manufacture an Apple dip, it would leverage control over the broad market.

Apple is the ultimate leading indicator for the indexes. Hedge funds can make more money than ever if they sell in collusion, spook the market, and then buy back in. It's happened 11 times in 24 months. Their absence at such an obvious time is curious, to say the least.

So where do we go from here? We were hoping to load up for either a dividend run or prepare for a buying opportunity at a dividend disappointment, and we got neither. We currently have 50% of the portfolio in AAPL stock and 10% in AAPL July calls. Those are prudent allocations to allow us to continue making a little money as the stock makes new highs, but they won't kill us on a big correction.

Today we are selling out of the relatively small 2% AAPL strangle allocation that didn't work because today brought us no volatility, and we are left with a stock that tempts us to buy more even though the time tested rule book is flashing caution.

The only answer is to stay true to the strategy of how to navigate the upper end of a trading range. Make a little money with small allocations, and if we are feeling like adding risk we can average into some AAPL LEAPS positions with preparations to jump out as quickly as possible once the hedge fund manipulation returns.

Disclosure: I am long AAPL.