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Is Apple Stock (AAPL) Being Manipulated?

|Includes: Apple Inc. (AAPL)

Wikipedia defines stock manipulation as follows:

Market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.

Opinions have been published before on stock manipulation in AAPL shares.

See – Fortune’s story of May 13, 2011, where the author describes how moves in the last 12 minutes of trading on a weekly-option expiration Friday, changed very profitable $350 call options to out-of-the-money ones. Additional information on the topics of pinning and Max Pain to option holders are well documented in sites like OptionPain.

The mechanism around option expiration keeps frequently reoccurring and while it may be illegal manipulation as defined under section 9(a)(2) of the Securities Exchange Act of 1934, it may also come about legally, in high capitalization, heavily traded companies like AAPL with in-the-money options – because sellers and buyers attempt to liquidate them, effectively placing very large amount of sell or buy orders on the shares – which in turn moves the shares in the direction of minimum payoff to the buyers.

Thus, for example, if there are 180,000 contracts of AAPL $350 calls (representing 18 million shares), when the stock is trading at $353 – a few minutes before 4PM on monthly expiration Friday, there may be as many as 18 million shares coming into the market during these last few minutes, pressuring the stock, and therefore reducing payoff to the call holders, as actually happened in the depiction outlined in the Fortune article above.

However, I’d like to point your attention, to a different type of possible manipulation.  One which I shall term – “walls of red”. The description below points to a possibility, not to any hard proof. It is intended as food for thought for fellow traders and analysts, and may hopefully instigate more data from additional sources – to corroborate or refute the possibility outlined here. It may also point regulatory authorities to explore further.

This manipulation is done very simply – throwing a very large volume of shares into the market, at critical points in the trade cycle. 

What are the best critical points – there are 2 primary ones:

·      * at the open – since it has the potential to impact the whole day

·      * at the close – since it will impact reported closing positions and strengthen the negative momentum forward.

“Walls of red” – since large walls of red envelope the pattern on both sides as can be seen in the charts.

Below is a chart from Power Etrade, showing the 1 minute daily chart for Friday, June 10th.  I have seen a similar chart for AAPL on many occasions over the past few weeks.

Notice the huge walls of red on both sides (the open and the close) of the volume chart. The opening volume at 9:30AM shows a volume (291,350) which is 7.7X that of the average per minute number of shares during the rest of the day. The volume at the close – similarly, shows a volume (271,640) which is 7.2X the daily, per-minute average.

AAPL Walls of Red - June 10th, 2011

Heavy volume in the opening moments of trading (9:30-9:33) and closing of trading (15:57-16:00) weighs down on AAPL . 

You don’t see any similar pattern (you will either see a random fluctuation during the day, at times green walls that are taller than the red ones or at most one red wall – never two) on any other equity that dropped substantially on June 10th (check out FTNT, EMC, SLV, GM, OVTI, BIDU, OPEN and many others).

The sense in these heavy selling moves and the consistent pattern, points to a possible purposeful and planned effort.

What’s in it for the possible manipulators?

1.    This effort, focused on what may be the most successful and consistent mega-cap company stock in history, allows the manipulators to reap the jump back up that the stock will most definitely see

2.    It is my stipulation, that selling in large chunks at these critical junctures every several days and over an extended period of time, will have generated sufficient negative momentum, that will continue once the manipulators have exited their positions. That allows them to climb back on, in smaller chunks, and at lower prices than they used for exit, coming on board just in time for the next major leg up, which would be most likely be 31 or more days out (like AAPL’s Q3 earnings announcement in July 2011).

3.    AAPL’s got a proxy- that is being played in the other direction. That proxy is the ProShares QQQ. Although AAPL’s share of the QQQ was slashed from 20% to 12% by late April, 2011, the correlation between the two remains high.  Thus for example between April 30th and June 10th, 2011 the QQQ declined 7.52%. AAPL at the same time declined 6.92%. In the month of June so far, the QQQ has declined 6.37%, while AAPL declined 6.30%.  So pushing AAPL down continues and will most likely continue to have a large impact on the QQQ.  By buying put options on the QQQ or buying the QQQ ultrashort – the manipulators would be benefiting with the QQQ as well.

Imagination? Far-fetched? Right-on?

Please pipe-in with your comments and data below.




Disclosure: I am long AAPL.