Nasdaq re-weighting could hurt Apple’s shares

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    Posted: 06 April 2011 01:12 AM #46

    FWIW, I sent an e-mail to two NASDAQ individuals mentioned in their FAQ regarding the rebalancing.  My primary question is how can there be 2.4 billion current AAPL shares when AAPL only has roughly 930 million.  I will report what I find out.

         
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    Posted: 06 April 2011 01:24 AM #47

    In some ways this will be good.  There is less of a requirement of any fund to own AAPL, the Jobs health issue has dropped the stock, the FUD about delays of the iPhone and the component shortage have added to that.  The rebalancing of the Nas 100 is the nail.

    All the news is in folks.  Get out now or not.  If 70% growth YoY not enough for you then sell now.  It will be an entertaining 6 months ahead for sure.

    Just consider what PE you would give a company with such growth, make that a conservative estimate, and then make your decision.  Short term is dangerous but at some point the fundamentals are going to drive the stock.

         
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    Posted: 06 April 2011 01:24 AM #48

    double post

    [ Edited: 07 April 2011 01:04 AM by Bryanyc ]      
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    Posted: 06 April 2011 01:33 AM #49

    mbeauch - 06 April 2011 02:27 AM

    Just my opinion, but I think this bodes well going forward. The NAS has done us a favor. If AAPL were to keep increasing in value, it would become an even larger percentage (nobody wants to see AAPL make up 30% of the NAS 100). This way AAPL has had it proverbial leash unhooked. I welcome this news.

    I agree. It’s obvious how AAPL affects NAS. It’s not so clear how the various index funds, ETFs and NAS derivatives affect AAPL. There is a possibility those hold AAPL back. (don’t ask me how) I think it’s good to attenuate the connection.

         
  • Posted: 06 April 2011 09:20 AM #50

    PED is picking up Minyanville’s question from yesterday:

    http://tech.fortune.cnn.com/2011/04/06/apples-crunch-was-there-a-leak/

    The gap in the blue line on April 5 in the chart at right reflects the $4.2 (1.2%) traders knocked off Apple’s share price at the opening bell Tuesday—the first opportunity money managers had to rebalance their portfolios after NASDAQ announced in the middle of the night that it was reducing Apple’s weight in the closely followed NASDAQ-100.

    This was to be expected.

    What was not expected was the $6.55 (1.9%) hit Apple’s shares took on April 1—most of it after 2 p.m.—on a day when the Dow was up and a couple analysts had just raised their Apple target prices.

    Among those who smell something fishy in Friday’s trading is Minyanville Media CEO Todd Harrison, who posted this red flag for the SEC on Tuesday:

    “Doesn’t it feel as if someone got the call regarding the Apple (AAPL) re-weighting at 2PM on Friday afternoon, when the stock was trading at $348 and change? That would explain the twelve-handle dip into the news… as well as the lack of reaction today on the news.”

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  • Posted: 06 April 2011 09:27 AM #51

    ?Doesn?t it feel as if someone got the call regarding the Apple (AAPL) re-weighting at 2PM on Friday afternoon, when the stock was trading at $348 and change? That would explain the twelve-handle dip into the news? as well as the lack of reaction today on the news.?

    I could not possibly expect corruption within the Nasdaq ranks….. or may be Wall Street is Maffia runned

         
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    Posted: 06 April 2011 09:30 AM #52

    mbeauch - 06 April 2011 02:27 AM

    Just my opinion, but I think this bodes well going forward. The NAS has done us a favor. If AAPL were to keep increasing in value, it would become an even larger percentage (nobody wants to see AAPL make up 30% of the NAS 100). This way AAPL has had it proverbial leash unhooked. I welcome this news. What a surprise, I am not on the popular side. rolleyes

    Well, count me in ‘your side’. I think this is GREAT news and makes me even MORE confident that aapl has some room to grow.

    However, Apple (aapl) still has the elephant in the corner issue (SJ) to deal with so there’s also considerable risk in the short run.

      cheers to the longs
          JohnG

         
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    Posted: 06 April 2011 03:30 PM #53

    I haven’t seen this discussed anywhere, but one consequence of this “special rebalancing” is that another, regular rebalancing may be coming sooner than it would have.

    On a quarterly basis coinciding with the quarterly scheduled Index Share adjustment procedures, the Index will be rebalanced if it is determined that: (1) the current weight of the single largest market capitalization Index Security is greater than 24.0% and (2) the ?collective weight? of those Index Securities whose individual current weights are in excess of 4.5%, when added together, exceed 48.0% of the Index. In addition, a special rebalancing of the Index may be conducted at any time if it is determined necessary to maintain the integrity of the Index.

    (quote is from https://indexes.nasdaqomx.com/docs/methodology_NDX.pdf)

    Before the rebalancing, only AAPL and QCOM will have been above 4.5% of the index, for a total of about 25.5%. After, although AAPL will be reduced to 12.33%, MSFT, ORCL, and GOOG will be above 4.5%, with those four totaling 33.1%. What would it take to get to 48%? INTC, CSCO, QCOM, and AMZN will all be above 3% each. If they each get up to 4.5% that could do it. If just one or two of them cross 4.5% and the top 4 go up enough relative to the other index components, that could do it. Personally, I’d like to see another rebalance happen because AAPL rises above 24% of the index. smile

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  • Posted: 06 April 2011 05:03 PM #54

    OK, let’s see if we understand what’s happening.  Apple’s share of the NASDAQ 100’s value is being reduced from 20% to 12%.  What this means is that funds that purport to mirror the NASDAQ 100 will have to adjust the mix of stocks in their portfolios.  If 20% of their portfolio is AAPL now, they will need to reduce that to 12% AAPL in order to mirror that NASDAQ 100.  This will happen over time.  Some will rebalance their portfolios immediately.  Others will not.  This means there will be some selling pressure over the next 30 to 60 days.  Those managers that believe AAPL will be worth less 30 days from now may make the entire adjustment now.  Those managers who believe what I just said may also make the adjustment now.  Investors who believe my last two sentences will sell now….and so on.  Eventually, things should calm down, but right now there is some panic selling out there.

    The real question one might ask is, why is the NASDAQ doing this now?  Is there something in the future they are afraid of and do they consequently want to reduce their exposure to it?  Another good question is who knew about this last Friday?  As for myself, I’ll probably just continue to hold my shares.

         
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    Posted: 06 April 2011 05:17 PM #55

    This will also work to put more shares back on the open market which could reduce volatility.  Maybe just wishful thinking.

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  • Posted: 06 April 2011 09:33 PM #56

    Double post

    [ Edited: 06 April 2011 10:49 PM by ByeTMO ]      
  • Posted: 06 April 2011 09:33 PM #57

    Unique - 06 April 2011 08:08 PM

    “The real question one might ask is, why is the NASDAQ doing this now?  Is there something in the future they are afraid of and do they consequently want to reduce their exposure to it?”

    The QQQQ and Nasdaq 100 will tank when SJ bad news hit. Panic sell. No idea what these crooks are up to.

    Does anyone know the history of Nasdaq doing something similar to eliminate the possibility this was timed w/AAPL? 

    Despite the news of the tsunami, the Nasdaq and iPhone 5 rumors, AAPL has held up rather well.  Unfortunately, the three events have effectively torpedoed an expected uplift into earnings.  At least up until today.  We still have two weeks to get our FQ2 2011 rally.  I’m not saying we will.

    [ Edited: 06 April 2011 10:49 PM by ByeTMO ]      
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    Posted: 06 April 2011 09:51 PM #58

    I don’t think fund managers are stupid.  They’re not going to massively sell AAPL simply because of a technical need to rebalance their portfolio because of an index rebalance. 

    They also know if they rebalance in a massive sell they will shoot themselves in the foot as well, so they’re not going to do that.  But I do see funds selling AAPL slowly, over time (perhaps until May 2, perhaps even beyond that if their fund rules allow them to rebalance more slowly).  This means that AAPL shouldn’t TANK, but it may go sideways or incrementally lower for a few months before suddenly recovering.  Looking as recently as last summer, we had a period of sideways trading from May until Sept before it ramped up.  Remember too that earnings don’t automatically equate to share price gains - the July 2010 earnings release didn’t do anything to prop up the stock (its PE simply shrank).

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    Posted: 06 April 2011 11:50 PM #59

    moltenfire - 07 April 2011 12:51 AM

    the July 2010 earnings release didn’t do anything to prop up the stock (its PE simply shrank).

    P/E virtually always goes down right after earnings. But the price went up nicely from $251.89 in the days after July 2010 earnings. And P/E recovered before the next earnings were announced.

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    The only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. — Steve Jobs

         
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    Posted: 06 April 2011 11:53 PM #60

    They discussed this on Fast Money. Some are already selling, much like what Zeke and moltenfire describe. But some have to sell on May 2 (I’m guessing index funds like QQQ do).

    Nevertheless, I don’t think AAPL will tank May 2, because the value for buyers keeps getting better.

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    The only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. — Steve Jobs