Whats behind Apple’s “Insanely insane ‘ sell off

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This is perhaps the worst sell off I have ever seen in my 15 years of stock market sell offs. Nothing compares to this type of selling. Fast, furious and and with a kick to harm the sentiment and your inner outlook. If you are scared and punished you are not alone. Millions have suffered through this nightmare.

You see Apple is a stock that is owned by small investors like you and mega hedge funds and mutual funds alike. It has been America’s favorite darling for the past few year, until something else comes by and replaces it. The success Apple had is the envy of of every other company and they would be glad to exchange places with Apple any given day.

Here is the biggest market cap company in the world, with stellar earnings record and boutique of iconic new products recognizable around the world and it was sold off mercilessly down from its highest recent prices . The company has insane amounts of cash $120 billion on a balance sheet you would be envious of,  and it just paid a $2.65 in dividend. Yet it sells off insanely ? All down hill straight to the bottom shaking up every investor in its wake. Here is a must see video from Bloomberg:

WHY THIS SELL OFF ?

It is insane enough that a stock like AAPL will sell off, but what begets the questions why this sell off took place in the first place? There are many innuendos and fairly tales out there. The negativity and dour out look has those weird outlandish theories confluence d into a one big evil package. But why this happened? Let me explain, as best as I can.

Apple is an outlier according to Jason Shawarz who writes for the Thestreet.com. We know that only large quantities of selling can bring any elephant down in the market, so every day these mutual funds and others kept coming to the market and selling a portion of their portfolios. Why? Because AAPL is too big ! Not because it is too small or too bad. It is too good of a stock to have it around.

AAPL has been up 75% in 2012 and the portfolio managers holdings have grown from 8% to 9% maximums which is what their prospectuses allow for a single stock. The sheer amounts of built in profits were huge too. But lets put that aside for a minute. The portfolio holdings have now become 13 to 15 percent by late September 2012. They overflowed expectations and desired results. There was nothing more to be had because the 8 to 9 percent holdings were restricting this sudden and huge growth pattern in a single stock. Besides the ” insane ” amounts of profits were too good to be had given the fact that this was year end, and they needed to show the results. There was also a chance should Obama get re-elected there would be a Fiscal Cliff, that kick-the-can-down-the-road type Debt fight from August 2011 and that could have damaged these profits and the stock portfolios.

RE BALANCING OF PORTFOLIOS

It’s the sheer size of re-balancing that created this waterfall type sell off. Added to that day traders, riff raff, retail shorts, and others who make a living diving on other people’s misfortunes and there was this one of a kind non stoppable free for all sell off in the greatest stock ever seen. Every day these managers would put huge quantities of stock for sale. Every day it will move down 10 points to 20 points. I re-call one morning seeing 5 million shares flushed down in the first 15 minutes of the opening. The stock dived from 537 to 530 and kept on going down. It was insane, never seen anything like that. But nothing is for ever.

THE ELECTION RESULTS

The election results did not sit well with the Wall street, because the street was backing Mitt Romney. The horse didn’t come first and the following morning was a disaster for the stock market. APPL was no exception to the rule. the stock was selling off on other reasons to begin with. The stock was around 582 and it gapped down that day and was smashed against the wall. It was like throwing a beautiful glass vase against a wall and it shatters to million pieces before your eyes. The stock was shattered too just like that. It went down 56 points in 2 days following the US election results. This was the single most destructive week in the frontal galleria of Wall Street’s usual Temper Tantrums. When ever they don’t feel good or they can digest something well, they puke all over the sidewalk, and than come back and pick it up.

THE REVERSAL

The minute they ran out of selling the stock a strange thing happened. Buyers stepped in on Friday November 16 2012 and the stock reversed sharply. Given the fact there were lots of shorts in the stock, they started covering and the stock ran back up to 525 in just about 1 hour. That was 20 points in less than 60 minutes and it gave a big hammer on the charts , reversal pattern. Jim Crammer talked about the reversal in his show that evening how they ran out of stock to sell.

As of this writing AAPL closed last Friday at 571 up from the lows of 505 and is now on the move to the upside. Where it will go? Perhaps where it was. I am quite sure Wall Street will clean its puke from the sidewalk and maybe lick it back like old times as seen in the past.

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Dantanner is a stock enthusiast and a Technical trader specializing in Option strategies.

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