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Nasdaq 100 Rebalancing To Reduce Apple Weighing From 20% To 12%

Tyler Durden's picture


In what could easily be the biggest news of the day, even more important than the most recent Chinese rate hike, the one stock that determines the broader stock market level more than any other, Apple, may well get crushed today as index arbs dump it following news that the Nasdaq 100 intends to announce a rebalancing which will see AAPL drop from a 20% to a 12% weighing. According to the WSJ, the move is akin to what various exchanges do when they hike margin rates to prevent commodity prices from surging: "The rebalancing was driven in part by the seemingly unstoppable rise in Apple shares, which are up more than fourfold in the past two years. The tech company's big weighting means that a change in fortune for the maker of iPhones, iPods and iPads has a huge impact on one of the most heavily traded indexes in the market. After the rebalancing, which takes effect May 2, Apple will make up 12% of the Nasdaq-100." Whether this will be the end of the company's relentless rise remains to be seen although any impairment in the sensitive ecosystem of technical factors that has so far prevented any fund from selling the company may well be impaired at this point, leading to the first bona fide sell off in the name in the past 3 years.

From the WSJ:

The move could mean significant selling pressure on Apple shares by money managers tracking the index. Because of the way the index has been calculated, Apple was given more than twice the weight in the index than it should have had based on its number of shares. Under the new plan, it will be reduced to the weight it should have given its size.

Apple's market capitalization is roughly $300 billion, twice that of Google. But its weighting in the index was five times that of Google. After the rebalancing, Google's share of the index will be 5.8% compared to Apple's 12.3%. Apple will remain the largest component of the index.

In addition to Apple, 81 other stocks will see their share of the index reduced. The remaining 18 stocks will get a boost in the index. Among the biggest beneficiaries will be Microsoft Corp., whose weighting in the index was reduced in the only other special rebalancing of the index 13 years ago. Microsoft will see its weighting boosted to 8.3% from 3.4%.

The rebalancing is likely to kick off waves of trading in the stock market as money managers scramble to adjust holdings to reflect the new composition of the index. There are more than 2,900 financial products tracking the Nasdaq-100 in 27 countries, Nasdaq says. That includes the $24.4 billion PowerShares QQQ exchange-traded fund, which over the past year has been the sixth most actively traded stock on U.S. exchanges.

Nasdaq estimates that for every $1 billion directly tracking the index, such as through mutual funds or ETFs, 9.5 million shares will change hands. "It's going to be a big trade," says John Jacobs, executive vice president at Nasdaq. However, "we wanted to make this very transparent. Everyone will see what we're doing and everyone will have a month before we do this."

The rebalancing is being driven by more than just Apple, even if it is by far and away the stock that will see the biggest change. The reasons tie back to the complex inner workings of the index that determine each stock's weighting. The reweighting is based on shares outstanding for the stocks in the index as of March 31, Nasdaq said.

Various stockholders have already complained vocally that this is unfair as it is comparable to changing the rules in the middle of the game.

Welcome to what trading silver and gold feels like on a daily basis.


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Tue, 04/05/2011 - 07:16 | 1135983 tek77blu
tek77blu's picture

Yes, gold and silver will become the new investment and trading mecca for this entire decade:

Tue, 04/05/2011 - 07:21 | 1135987 Rikki-Tikki-Tavi
Rikki-Tikki-Tavi's picture

Man, I guess all those AAPL put buyer's yesterday just got "lucky"!

Tue, 04/05/2011 - 07:40 | 1136010 dogismyth
dogismyth's picture

Just more bullshit manipulation of the market as expected.  Apple is  finishing its 5 wave run since 1998.  THAT IS THE ONLY REASON ITS WEIGHTING IS BEING REDUCED.  The PTB do not want AAPL's decline to affect the index.  Imagine that.  Now that can adjust the indices any way they choose!  Who woulda thunk??

Fuck this market and this fucked-up democracy we supposedly live in.

Tue, 04/05/2011 - 08:07 | 1136071 taraxias
taraxias's picture

Shirley pay the man !!!!!

EXACTLY, that the ONLY reason why this is done. Reap the benefit when going up, don't affect the index going down. END OFF.

Tue, 04/05/2011 - 08:22 | 1136118 fuu
fuu's picture

Or they just lost their supply chain and are going down anyway. SOunds more like they want to preserve the rest of the index when that happens. More to preserve the prevalent manipulation than any voodoo wave count.

Tue, 04/05/2011 - 08:25 | 1136124 TradingJoe
TradingJoe's picture

Got me some dirt cheap puts on the QQQ yesterday!!! For May expiration!!! Now talk about "lucky" eh?!

Tue, 04/05/2011 - 07:22 | 1135988 dukeystick
dukeystick's picture

That's almost enough to make me buy the XXXX !

Tue, 04/05/2011 - 07:23 | 1135994 dukeystick
dukeystick's picture

That is the ADULT version of the QQQQ.

Tue, 04/05/2011 - 07:23 | 1135989 The Axe
The Axe's picture

Tipping my hat, and with some other ZH's on board, I pointed out several days ago AAPL,s overall weakness vs the markets power move up. However, the true catalyst down is this re balancing news, POINT being...If you think the inside circle of Wall Street was NOT privy to this info from NASD....while I got a bridge to fucking sell you. Cause the stock has acted like shit, and no PD, market-maker or hedgie in the know was news...oh surprise--fucking surprise...just happy for a change that I saw it, and now reaping the reward....

Tue, 04/05/2011 - 07:24 | 1135997 duo
duo's picture

The "AOL effect" in reverse?

Tue, 04/05/2011 - 07:29 | 1136000 drswhaley
drswhaley's picture

MSFT up 2.7% in pre-market, after more than a doubling in Nasdaq-100.  Seems like a muted response but also suggests that the total % of shares carried by the index ETFs in MSFTdon't add up to that much.  Would be even less in a high market cap name like Apple.  Interesting to know what the Nasdaq-100 performance would have been that lowered the weighting of MSFT.  I'm guessing this index going forward will not be as high on volatility as before.

Tue, 04/05/2011 - 07:36 | 1136003 mogul rider
mogul rider's picture

If they put $gold or $silver paired to the nasdaq 100 for the last 10 years then you'd see shit fly.

The hoard would run like fat bastards.

I haven't looked it up late but what is the AAPL/$gold pair.

Since AAPL is the only company in the world actually maing money it is the true pairing for gold/silver.


Golden Ipads bitchez


however, if the zombies come to my  house I know what I'd rather have in my basement


Tue, 04/05/2011 - 07:36 | 1136006 prophet
prophet's picture

Been a long time coming.  So if you are not an indexer but a hedgie long AAPL and short NDX futures, will you plan to reduce your index shorts?  When and how fast do you move into this repositioning?

Tue, 04/05/2011 - 07:37 | 1136009 assumptionblindness
assumptionblindness's picture

So, AAPL justifies a 20% sumo-weighting on the way up to the observation deck but gets the "Honey I Shrunk The Kids" treatment before taking the elevator back down?  Priceless...  

Tue, 04/05/2011 - 07:42 | 1136013 magpie
magpie's picture

+ 314 Billion Market Cap

Tue, 04/05/2011 - 10:27 | 1136619 vote_libertaria...
vote_libertarian_party's picture

It's sick, I know, but my first thought was Steve Jobs must have taken a turn for the worse.   So they lighten up the weighting before the news breaks.

Tue, 04/05/2011 - 12:47 | 1137514 malek
malek's picture

In other words the NASDAQ has no objections riding on the fourfold increase, and now they are making sure they participate less on a possible reverse move to a quarter of today's price.

Where have we seen this game before?
Oh yes, mark-to-maket accounting!

Tue, 04/05/2011 - 07:50 | 1136037 Robslob
Robslob's picture

They probably just found out from Steve Job's Doctors he is going going to die...

Steve Jobs is not priveledged to know this information about his health....yet.

Tue, 04/05/2011 - 07:53 | 1136046 Waterfallsparkles
Waterfallsparkles's picture


Thought the same thing.  It appears that one mans life is holding the Market hostage with the weighting of Aapl. 

Also, found it interesting that insiders at Nflx sold tons of shares before this rebalanceing.

Tue, 04/05/2011 - 07:57 | 1136054 magpie
magpie's picture

Jobs needs to team up with Ray Kurzweil.

Both get to be eternal apps, like Clippy in MS Word...

Tue, 04/05/2011 - 10:07 | 1136540 assumptionblindness
assumptionblindness's picture

Ding ding ding!  You have probably nailed it!  TBTB don't want a obituary on Jobs to destroy $1T of NASDAQ book value within a few days. 

Tue, 04/05/2011 - 07:51 | 1136039 Waterfallsparkles
Waterfallsparkles's picture


Do you have a link to show all of the readjustments?

Wonder about the other high flyers like, nflx, crm, cmg, plcn.


Tue, 04/05/2011 - 08:00 | 1136059 Pants McPants
Pants McPants's picture

The market portfolio has always been the banker portfolio.

Tue, 04/05/2011 - 08:07 | 1136070 101 years and c...
101 years and counting's picture

preparing for the permanent departure (or worse) of Steve Jobs?

Tue, 04/05/2011 - 08:50 | 1136226 Waterfallsparkles
Waterfallsparkles's picture

Supply chain issues are very high.  With all of the radioactivity in Japan and the potential of that radioactivity possibly being in the parts manufactured in Japan, they will need to find or build plants for production outside of Japan.  That will take a lot of time.

I do not think people will want to buy IPods, IPads and computers with potentially radioactive parts from Japan.  Japan makes the chips, the batteries, the glass for the products.


Tue, 04/05/2011 - 09:13 | 1136306 falak pema
falak pema's picture

This shift may be highlighting the trend that Reggie Middleton has been supporting : The Android mobile phone shock wave and its impending impact on the Apple economic model. Will the Android juggernaut, hybrid structure, but dominant autoroute down system highway of mobiles, dry the all integrated HW/SF integrated package model of Steve Jobs? Looks like the dice are rolling and Steve and/or successors will have to pull off a big one to stop this roll and pull back client to IOS mode. Maybe the Ipad will decide on this mega-tug-of-war in making. Nasdaq has decided to cover its bets! Sign of the times! 

Sat, 04/09/2011 - 21:47 | 1154213 thames222
thames222's picture

Can you say too much power?  Jesus, Apple just refuses to stop making more money.  I dislike their products and culture, but boy do I respect their power and grasp of consumer needs.  What's good with getting Jobs an office in politics?

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