Enis’s Macro Wrap – Why Was $AAPL Stock Down 6.5% Yesterday?

by Enis December 6, 2012 7:55 am • Commentary

Why was AAPL down 6.5%?  What was the cause of it?  Who was selling?  Why were they selling?  Was it temporary?

I heard all of these questions and more yesterday.  It’s natural for traders to search for answers when the largest company in the world is down 6.5%.  I honestly don’t care.  In trading, you’ll never know the full why.  You only know what happened.  Figuring out why it happened would mean knowing the psychology, intentions, and reasoning of every other market participant in the world.  We’ll never know the complete why.

And in AAPL’s case, the why has not mattered for many, many months.  That’s to say, the stock rallied from $400 to $700 this year with few questioning the “why” of it, and simply celebrating the what.  Human psychology created that euphoria.  On the way down, lo and behold, human psychology creates the panic.

So what do I think of AAPL’s stock here?  It’s in a bit of a no-man’s land in my view.  I’ve expected the stock to trade in a range ever since it made the capitulation bottom on Nov 16th.  That’s why I continue to hold the long Jan13 540 / 580 1×2 call spread.  This trade will continue to decay, and gain value if AAPL stays between $520 and $600 over the next couple weeks.

My main concern now is that the stock breaches the previous low at $505.75.  Here is the 1 year chart:


I’ve included the RSI in the bottom panel of the chart, and circled the recent oversold readings in mid-November to illustrate why I think a new low is eventually likely.  When the RSI gets that oversold, the first bounce usually fails, as the selling momentum eventually takes the stock to make a new low.  The key word, though, is EVENTUALLY.  I don’t think AAPL stock is going straight down to $500.  For now, I plan to hold my 1×2 call spread, but I want to see how the stock acts over the next few days.  I certainly think the stock is more likely to touch $500 rather than $580 in the next few weeks.  AAPL is moving quickly, however, so I plan to remain flexible.

Regardless, if the stock does have an aggressive capitulation move below $500 in the next month or two, I think it would be a good longer-term buying opportunity.  We will lay out some possible trades later today to take advantage of that.

Markets overnight:

  • Asia mixed, with Japan up and China down.  Europe up 0.3% after being up 1% earlier.  SPX futures essentially flat.  The ECB held rates unchanged at 0.75% as expected.
  • The dollar and Treasury bonds close to flat, commodities slightly lower.
  • Initial jobless claims out at 8:30 am EST.  Payrolls Number the big one tomorrow.