AAPL’s April 2012 Sell Off

  • Posted: 17 April 2012 04:41 AM

    I comment on my Spreadsheets what I think was happening that led to AAPL’s moves.  Given the discussions of AAPL tracking other high beta stocks and the indexes, would it be fair/accurate to say that AAPL’s performance the last two weeks was market driven?

    Signature

    You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.

         
  • Posted: 17 April 2012 11:47 AM #1

    I did a little tax selling last week before the drop.

         
  • Avatar

    Posted: 17 April 2012 01:29 PM #2

    alice - 17 April 2012 02:47 PM

    I did a little tax selling last week before the drop.

    So you are responsible for the 10% correction?;)


    Gregg

    If that is the case, why did your analysis from past movements not pick up what appears to be a normal pattern this time of year?

         
  • Avatar

    Posted: 17 April 2012 04:52 PM #3

    It could be market driven. But it’s impossible to know for sure why the price dipped, just like it’s impossible to predict daily/weekly prices precisely and consistently. Sure, you can get lucky for a while, but then you’re going to be wrong. What is certain is that we’re all lucky. We’re lucky to have the bargain that is AAPL to invest in. And all of us, even those not investing in AAPL, are lucky to live in a world with Apple in it.

    What is also certain is the post-financial-crisis history of pullbacks for AAPL:

    AAPL pulls back 5% regularly, 10% now and then, and not much more than 15% (6 times) since late 2009, the exception being the 27% flash crash.

    AAPL dipped 10% from its recent high and it will dip 5% and 10% again and again in the future, and even 15% at some point, but not today!

    Signature

    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

         
  • Posted: 17 April 2012 05:29 PM #4

    omacvi - 17 April 2012 04:29 PM
    alice - 17 April 2012 02:47 PM

    I did a little tax selling last week before the drop.

    So you are responsible for the 10% correction?;)


    Gregg

    If that is the case, why did your analysis from past movements not pick up what appears to be a normal pattern this time of year?

    I’ve got to review my data (on iPad now), but I recall saying that there were pre-earnings sell offs, that seemed to indicate the institutions had some fore knowledge, that Apple wasn’t going to make its numbers.  I also remember saying that the pattern wasn’t consistent.

    I’m going to review the data, with an eye on tax selling vs institutional earnings knowledge, to see if that fits the pattern better.

    Signature

    You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.

         
  • Posted: 17 April 2012 10:32 PM #5

    Yes, I believe the market was a major factor in the sell off.  If we look at a chart of the S&P it made a double top on April 2nd and began a significant decline.  The double is quite visible on the monthly and three month charts.  The DOW followed suit however I did not consult its chart. 

    Apple resisted for quite a while, but eventually broke down as we know and began selling off.  The market reversed prior to Apple changing course today.  Once Apple reversed it was ripe for the shorts to take it and for technicians to chime in with all the reversal signals. 

    There was also some unfavorable news: the DOJ lawsuit, the article about carriers potentially dropping subsidies, Mr. Elloit Wave himself chipping in about an ugly sell off.  I have a fundamental approach, but appreciate the overall market and technical analysis having their place in the picture.  We have been in an uptrending market this year until the double top.  Is this just a small correction? Don’t know.

    Like a lot of things in life we all want one simple black and white answer, and it’s never that easy.  Any number of factors may have contributed to the sell off, but I don’t expect Apple can just continue to go up without some assistance from the overall trend.  Just my two cents.

    Where is your spreadsheet comment? 

    Gregg: I have a question about the earnings BCS strategy you discussed a few weeks ago.  Why May and not June for your BCS spreads?  I don’t know much about BCS and I’m sure you have a reason, but it’s not clear to me.

         
  • Posted: 18 April 2012 03:34 PM #6

    OK, I’ve examined previous April trading patterns (pre-earnings) and while April 2011 comes close to being the same as this year, there are important differences which implies to me that this year was unique.

    The first and most obvious difference between 2011 and 2012 is the degree of AAPL’s PPS rise since January earnings.  In 2011 it was 1.37%.  I attribute this to Apple missing its March quarter internal numbers and the market’s anticipation of that miss.  This is supported by my Institutional Sentiment Index (0 the day after January earnings, -1 the day before April earnings), average daily trading volume and PPS (flat to down in the month prior to earnings), and ISM never achieving December quarter levels.

    Seller’s Motivation: Specific need for cash, negative sentiment for future earnings growth.
    Buyer’s Motivation: Positive sentiment for future earnings growth.

    My interpretation of the trading activity in the month prior to April 2011 earnings was driven by the low daily trading volume (no buyers).  I did not see that low volume as a Sell Off, but rather a belief that Apple was not going to report acceptable numbers.  There were 5 downgrades of AAPL in the month prior to April 2011 earnings.

    The only thing the month prior to April 2012 earnings had in common with April 2011 trading activity, was the fact that AAPL’s PPS went down.

    AAPL’s PPS rose 45% from January earnings to March quarter high (set 10 April on volume 30+% higher than the quarter average).  Average daily trading volume is 83% higher YoY, indicating a return of buyer’s (see Motivations above).  Institutional Sentiment Index the day after January earnings was +5 and is currently +44 (compare to 2011 Index).  ISM has expanded 15%.

    There have been several upgrades of AAPL in the last 30 days, the most recent by Goldman Sachs today.

    Further AAPL’s trading activity was not in isolation of the broader markets.  Although trading with a higher growth rate, AAPL’s trend line (compared to the DOW, NAZ and S&P) displayed influences, one on the other.

    Lastly April 2011 trading sentiment continued to be negative through earnings, falling even further post earnings, while AAPL’s 2012 decline reversed immediately after the April tax filing deadline.

    In conclusion I believe AAPL’s post January gains made it a target for generating capital to pay April 2012 tax bills, for both institutional and retail traders.  This would make 2012 trading unique from prior years, and would explain AAPL’s sharp divergence from the historic trend starting March 22.  It would also explain why it wasn’t foreseen.

    Signature

    You can’t do more, make more, be more, than the next guy, if you think like the next guy. Think different.

         
  • Avatar

    Posted: 18 April 2012 04:13 PM #7

    Ty for the comprehensive post.  I will be digesting this one for a long time.

         
  • Avatar

    Posted: 18 April 2012 04:14 PM #8

    Gregg, you do realize that institutions don’t pay taxes on April 17th, don’t you?

         
  • Avatar

    Posted: 18 April 2012 04:19 PM #9

    The way we test to see if this trend has legs if we see profit-taking to pay estimated taxes for June, September and December (estimated taxes for corporations are due on December 15, not January 15).

    Then again, so many forces were at work two days ago I’m skeptical that tax proceeds generation was the sole, or even major, cause.

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Avatar

    Posted: 18 April 2012 04:20 PM #10

    Nagrani - 18 April 2012 07:14 PM

    Gregg, you do realize that institutions don’t pay taxes on April 17th, don’t you?

    And that this implies a lot of folks waited to do their taxes at the last minute, and had an “Oh Sh_t” moment once they realized what they owed.

         
  • Avatar

    Posted: 18 April 2012 04:21 PM #11

    That implication might have some truth to it.  :D

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.

         
  • Avatar

    Posted: 18 April 2012 04:31 PM #12

    rutgersguy92 - 18 April 2012 07:20 PM
    Nagrani - 18 April 2012 07:14 PM

    Gregg, you do realize that institutions don’t pay taxes on April 17th, don’t you?

    And that this implies a lot of folks waited to do their taxes at the last minute, and had an “Oh Sh_t” moment once they realized what they owed.

    Not really. It doesn’t mean they waited to DO their taxes, but to PAY them. I know I did.

    Also, if your AAPL is in a big uptrend, you might wait for more gains before cashing in some shares to pay the tax bill. I’m still waiting for some options to become long term capital gains, so I paid the tax bill out of margin.

    Signature

    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

         
  • Posted: 18 April 2012 04:34 PM #13

    Gregg:  So if the conclusion is that we are in uncharted waters - how do you identify how we may trade over the next few days / week?  How did this latest action affect the coming price action?

    Signature

    Keep Calm and Carry On

         
  • Avatar

    Posted: 18 April 2012 04:34 PM #14

    Mav - 18 April 2012 07:19 PM

    The way we test to see if this trend has legs if we see profit-taking to pay estimated taxes for June, September and December (estimated taxes for corporations are due on December 15, not January 15)....

    Maybe not. The penalty for underpayment of federal estimated taxes is based on the currently very low interest rates. I just stay invested and pay the penalty. It’s a cheap loan.

    Signature

    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

         
  • Avatar

    Posted: 18 April 2012 05:05 PM #15

    6% annualized per my accountant.  Not that cheap to me…

    Signature

    The Summer of AAPL is here.  Enjoy it (responsibly) while it lasts.
    AFB Night Owl Team™
    Thanks, Steve.