Are Apple Analysts Reading Too Much Into Daily Market Gyrations?

It's not very common to see two different media outlets come out with two different explanations behind a stock's decline. Especially if the stock is a market darling like Apple (AAPL).

Apple finished Tuesday down 4.73% (7.96) to 160.20. Let's see if we can find out why.

Before the market open, Apple's shares were downgraded by AmTech Research.

Marketwatch ran a story, attributing the decline to the downgrade:

"This was a very tough decision as we have been bullish on Apple for the past several years," Wu wrote in a note to clients, adding that the stock has more than tripled in that time.

The move seemed to cool some of the enthusiasm around the stock. Apple shares slid $7.96, or 4.7%, to close at $160.20. The stock has come up from the $120 range seen last month but is still off its all-time high of $200 seen at the end of 2007.

Eric Savitz also blogged yesterday, seemingly pointing to the same conclusion.

In the meantime, AT&T released their earnings, and had an earnings call. Apple kept drifting down. Techcrunch came out with the headline: "Apple shares slump as AT&T Gives Vague Details on iPhone Growth"

Were both of them right? Or were both of them wrong?

Remember, the earnings downgrade was before the opening bell. If the downgrade had been such a negative event, I would have expected the stock to gap down. However, Apple opened only about a $1(0.6%) lower than its Monday's closing price and continued drifting downwards till a little after noon. This was in spite of the Lehman Brother's upgrade, as a top pick with a $195 price target, which kicked in around 10.45 am EST.

Interestingly, the S&P 500 gapped down by a similar percentage at the open(0.6%), and continued to move downwards till around 1 pm, after which it drifted sideways.

Remember, Apple is a high beta high flyer (Beta of 2.9 from Yahoo finance). A decline of 3% in Apple on a 1% down day would be par course given its historical volatility and high beta. Could the real reason be a decline in line with the market, in addition to some profit taking in an overbought stock? Remember, Apple is up nearly 45% since bottoming early this year.

So what do you think was the real reason for Apple's downward movement?

1. AmTech downgrade?
2. AT&T (T) being vague about iPhones?
3. The market being down on Tuesday?
4. The market being down AND profit taking in an overbought stock?

The truth be told, no one really knows the reasons behind the daily gyrations of the stock market. Investors will be wise to shut out the short term noise and focus on the long term signals. Freakanomics has an interesting post on overanalyzing short term market gyrations.

Ascribing a cause and an effect to every short term market fluctuation reminds me of our ancestors who would sit under a starlit night and point out shapes in the sky: the Orion, the Big Dipper.

This ain't too different.

Except the constellations at least served as navigational aids. These constant rationalizations and explanations only confuse the average investor.

As Benjamin Graham famously said:

In the short term, the market is a 'voting' machine. In the long-term, the market is a 'weighing' machine.

Disclosure: No positions in any securities mentioned above.

Comments

[Murphy]

Clearly certain analysts are catering to day-traders. Where's Wu's long term forecast? What happened to change all his +200 forecasts?
Nothing has changed at aapl. It'll pay off for anyone who's long. Day-trader's: you're crazy.

[Toni]

Please note: it's and its are two different things.

[User 182138]

I'm so glad someone else caught the repeated it's/its errors. I have a hard time taking an article seriously when the author makes such blatant gramattical errors.

[TanToday]

If the "Spell'n Polece" are finished with the grammar lessons....

.... can we actually DEAL with the topic at hand? { Makes you wonder about what nits they chose to pick at while ignoring the real world, doesn't it? }

Anyway, the REAL problem is the 24/7 News Cycle, coupled with the Internet, teamed up with blogger sites like this one.

Let me flesh this one out a tad. Imagine for a minute you are an overpaid, overeducated, myopic drone in a cubicle, and the sign on your desk says "Stock Market Analyst" you are expected to churn out 12 annual reports on 20 companies, meaning you are faced with 240 demands for YOUR OPINION. Now, most of these guys are staring at computer screens, and drawing squiggly little lines and casting spells over thier intense line patterns.

MOST of them, have never been to the companies they report on, MOST of them don't buy or own the products they write about, MOST of them just read each other, assemble a plausible scenario, and SOME of them, wanting a bigger cubicle, decided to GO WAY OUT THERE, knowing that 1/2 of the time they will be RIGHT, for you see, the truth IS, every stock WILL go UP or DOWN in a given timeframe. Call enough of those right, and COVER UP your wrong guesses, and you will become FAMOUS, and even someday have a media empire like Cramer, and YOU TOO can give a BUY BUY BUY CALL on a Bear Sterns, five days before it collapses....

... and best of all, KEEP your job, and screw the pooch over and over, accuracy counting for NOTHING, but name recognition, ala Paris Hilton is the key here.

[TanToday]

<b>-->"h... a hard time taking an article seriously when the author makes such blatant <u>gramattical </u>errors."...

WHEN you criticize someone's spel'n, and grammmar, you actually SHOULD use the correct spl'n and gremer, don'tcha thin soo?

grammatical NOT gramattical

AND NO, I really don't care about that, just found the irony just so delicious!

[hab2]

dfg

[hab2]

'Its' is a singular possessive noun and 'It's' is a contraction of 'It + is' - both have been used correctly in the article...

[ramankandola]

Analyst are "puppy dogs" run by the big hedge fund manager(s), and they have their own self interest in it ~

[Murphy]

uffa - pretty embarrassing for you to call him out on the * its * and get it wrong. What were you thinking? You too 182138. Too bad you can't delete your comment.

[reagan]

No kidding, Murphy. What is this, English class?

[AppleFool]

It just goes to show you that investing based on analyst opinion is not a good idea. When they don't have any real information, they just make up stuff.

[imthewiz]

Does aint need a contraction as in ain't??

[hab2]

Since you asked: ain't is already a contraction of 'is not / are not etc' but is not used in formal writing, except for deliberate humorous emphasis to represent colloquial speech such as - "you ain't seen nothin yet"